Oral Answers to Questions

TRANSPORT

The Secretary of State was asked—

Safety Cameras

Michael Fabricant: If he will make a statement on the siting of speed cameras.

Lee Scott: If he will make a statement on the siting of speed cameras.

Stephen Ladyman: The Department's handbook of rules and guidance for the national safety camera programme for England and Wales sets out strict rules and criteria for the deployment of safety cameras. The criteria ensure that cameras are deployed where there is a strong road safety need and where they can make a difference.

Michael Fabricant: But is that really the case? In 2003, prosecutions went up by 44 per cent., yet fatalities fell by only 2 per cent. The Minister says that so-called safety cameras—let us at least call them speed cameras—are placed in order to stop fatalities, yet often, where they are sited at the scenes of car crashes, those car crashes had nothing to do with speed. Will the Minister review where these cameras are sited?

Stephen Ladyman: The hon. Gentleman needs to keep up with events. We have just had a study of the first four years of the road camera partnerships, which shows a 70 per cent. reduction in vehicles breaking the speed limits at fixed sites and a 42 per cent. reduction in people killed and seriously injured at camera sites. No published work anywhere in the world suggests other than that cameras work in making roads safer. They are put where there is a history of speeding and of people being killed and seriously injured.

Lee Scott: I thank the Minister for his letter to me of 24 April regarding the speed camera at the bottom of the M11 in my constituency. While noting the contents, may I ask whether that camera will at least be repositioned in an area where it may help safety rather than hinder it, because it seems that accidents have continued to rise there?

Stephen Ladyman: Of course, the positioning of all cameras is kept under review. The camera that the hon. Gentleman mentions was put there to enforce a permanent speed limit on that particular part of motorway, where drivers were continuing to ignore the speed limit. The number of people being seriously injured on that stretch of road was not coming down, so a camera was necessary to enforce the speed limit. If it proves unsuccessful in reducing the rate of casualties, of course I would expect its position to be reviewed.

David Kidney: In Staffordshire, there are no plans for any new safety cameras in the coming year, yet residents continue to come to me with requests for new speed cameras because of the dangers of speeding traffic. Will my hon. Friend confirm that there is still very strong public support for safety cameras and that there is no obstacle to new ones being erected where there is a need to do so on road safety grounds?

Stephen Ladyman: I can give my hon. Friend that assurance. He will recollect that, in December, my right hon. Friend the Secretary of State announced that, from next year, we would have new rules governing how cameras were sited, with local partnerships having greater flexibility in being able to site cameras where they perceived there to be a threat instead of having to wait until people are killed or seriously injured before they do so. My hon. Friend is right to say that there is very strong public support for speed cameras, especially in towns and near to where children are at risk.

Ian Lucas: At the weekend, an eight-year-old girl was killed in north Wales as a result of a road traffic accident. Does my hon. Friend agree that a strong message should go out from both sides of the House that speed and traffic kill and is it not unfortunate that that seems to be becoming an issue on which opposing sides of the House do not agree?

Stephen Ladyman: First, let me express my sadness at the news of the little girl being killed in Wales. I am sure that the sympathy of the whole House goes out to her family.
	It is very important that we recognise that all the evidence suggests that speed kills and that it is necessary to have strict enforcement at certain dangerous places to ensure that people are obeying the speed limits. If we do that, we will continue to drive down deaths and serious injuries on our roads, as we have over recent years.

Alistair Carmichael: The Department's research, to which the Minister referred, established that, in some 245 cases, there had been no reduction in casualties following the siting of road safety cameras. What has happened on those sites? In how many cases have the cameras been removed and nothing put in their place and in how many have they been replaced with other safety measures?

Stephen Ladyman: If the hon. Gentleman has specific examples about which he would like information, I shall attempt to get it for him. The Department's study showed significant improvements in the rate of casualties across most camera sites. The Department has requested the safety camera partnerships to review the siting of all cameras and ensure that they are in the best place, where they can be most effective.
	I detect another example of the Liberal Democrats wanting to have it both ways. They appear to oppose safety cameras but, when they talk to some groups, they demand more and more of them.

David Taylor: The Minister referred to community safety partnerships' ability to urge the placing of cameras when the strict criteria are not necessarily in place. Is not it true that, on several roads, the high speed and the amount of traffic travelling at excess speed discourage pedestrians and cyclists, and that it would, therefore, be reasonable to locate a safety and speed camera on such a road?

Stephen Ladyman: My hon. Friend is correct. Even under existing rules, road safety camera partnerships are entitled to 15 per cent. flexibility. They have some local flexibility to decide where to site cameras. Under the new rules that the Secretary of State announced in December, they will have much greater flexibility from next year, but they will also have to be accountable to local people for where they have decided to site cameras. They are entitled to do that to encourage pedestrians and cyclists if they wish but they must explain to local people exactly what they hope to achieve and their targets for the site.

Owen Paterson: On 21 March, the Minister said in Standing Committee A on the Road Safety Bill [Lords] that
	"the people who deploy cameras must in future either ensure that drivers can see a camera and a speed limit sign in the same field of vision, or put a speed limit on the road as a reminder."—[Official Report, Standing Committee A, 21 March 2006; c. 75.]
	What practical steps has he recently taken to put that into practice?

Stephen Ladyman: As part of the package that the Secretary of State announced in December, we are publishing new guidance to all the safety camera partnerships, making it clear how we wish signage to be improved. It is vital that motorists can see a speed limit sign in the same field of view as a camera. For legal reasons, it is not always possible to put the speed limit on the camera. The notification of, for example, a 30 mph speed limit is done not by repeater signs but by a road sign when one enters the speed limit area and the presence of lamp posts in a built-up area. We therefore have to be careful about exactly how we proceed but the Department is issuing clear and good guidance about how it should make the signs available.

Rail Freight Interchange (Radlett)

Anne Main: If he will make a statement on the proposed rail freight interchange at the former Radlett aerodrome.

Derek Twigg: It is for the private sector to develop proposals and progress them through the necessary approvals including planning consent. I understand that no planning application has yet been made for the proposal to which the hon. Lady refers.

Anne Main: Large consultation exercises are going on. Does the Under-Secretary agree that, if blight is put on houses—it has already been accepted by Helios and Lafarge, which offered to buy a house but have now rescinded the offer and said that there is no possibility of compensation—and the Government decide to push ahead and grant permission against the wishes of local residents, they should ensure that compensation is provided for any blighted properties?

Derek Twigg: The rules of blight are well established. As far as I know, we have not yet received a planning application. Normal planning procedures will apply and it is not appropriate for me to comment at this stage.

Cycling

Jo Swinson: If he will make a statement on his Department's strategy for (a) increasing cycling journey numbers and (b) reducing cycling injuries and deaths.

Derek Twigg: The Government set up Cycling England to plan and co-ordinate the development of cycling across the country. Cycling England is supporting local authorities by providing expert advice on the design and promotion of cycling and showcasing best practice in six towns. Measures to improve safety include recommending safety and visibility aids, publicity campaigns, promoting cycle training, and raising motorists' awareness through training and testing.

Jo Swinson: Many people are deeply concerned about the draft revised highway code and the effect that it will have on cyclists. If, as is proposed, it is changed to require cyclists to use cycling facilities, a cyclist involved in an accident with a vehicle might not be covered by the motorist's insurance company due to a contributory negligence claim. Will the Minister give us an assurance that the new highway code will not force cyclists off the road for fear of legal consequences?

Derek Twigg: The simple answer is that it will not.

David Borrow: We want to encourage more cyclists to use our roads in urban areas, but I am sure that many hon. Members will have noticed the increasing propensity of cyclists to ignore traffic regulations. They often cycle straight through red traffic lights and over pedestrian crossings. What action is my hon. Friend's Department taking to increase the education of cyclists, and to enforce existing legislation?

Derek Twigg: We have set up Cycling England, which plays an important role in taking cycling forward, and we will see better cycling safety training and driver awareness. Significant extra sums have been invested, not least in providing safer routes to school to increase the safety of younger people.

Daniel Kawczynski: In regard to the point raised by the hon. Member for South Ribble (Mr. Borrow), the House of Lords has recently discussed a proposal for vehicle registration for cycles to encourage cyclists to be more responsible on the roads. What is the Minister's view of that proposal?

Derek Twigg: The key issue is that cycling is a sustainable type of travel that is very good for people's fitness and health, and we want to encourage it. It is also important that we continue to press safety awareness issues and to make them clear to cyclists and motorists alike. Increased investment has been made in cycle training and in developing cycle training programmes, which will be important for improving safety on the roads for cyclists and motorists.

Lynne Jones: What about training for motorists? Instead of trying to confine cyclists to using specific cycling provision, which might be inadequate, will my hon. Friend consider the practice in continental Europe, where far more people cycle? One of my constituents, who comes from France, tells me that the French highway code places the onus on motorists to give cyclists plenty of space. Can we look to best practice in European countries and bring our cycling levels up to theirs?

Derek Twigg: Yes, we can clearly learn lessons from such best practice, and we will do so. The consultation on the highway safety code finishes on 10 May and we will listen to any suggestions and proposals made. I hope that, when the right hon. Member for Witney (Mr. Cameron) cycles anywhere, the Lexus carrying his socks and shoes is far enough behind him.

Transport Infrastructure (Northamptonshire)

Philip Hollobone: What discussions his Department has had with the growth areas directorate in the Office of the Deputy Prime Minister on additional transport infrastructure provision in north Northamptonshire.

Stephen Ladyman: The Department continues to work closely with the Office of the Deputy Prime Minister to agree what the plans for the growth areas mean in detail and how they will affect the Department's investment plans.

Philip Hollobone: With 52,000 new houses planned for north Northamptonshire in the next 15 years, some respected traffic consultants say that there will be a 75 per cent. increase in vehicle traffic. Local residents are rightly worried about that. The local road infrastructure is already completely inadequate and it will not be able to cope with growth on that scale. Will the Minister undertake to sort out the A14 and advise the Office of the Deputy Prime Minister that large-scale housing expansion cannot take place unless there is a dramatic improvement in the local road infrastructure?

Stephen Ladyman: We recognise that these issues are important and that people wish to be assured that the development of road infrastructure will go hand in hand with the development of new housing. We are working closely with the Office of the Deputy Prime Minister to achieve that. For example, the growth areas fund has provided £60 million in Northamptonshire in recent years, and there will be another £50 million in the next two years, along with £27 million for transport projects from the community infrastructure fund. In addition, a range of other initiatives is ongoing. On top of that, we are considering the region's advice on how we should spend its allocation of funding on transport projects in the overall region.

Railways (Personal Safety)

Sadiq Khan: What recent representations he has received expressing passenger concerns about personal safety on railways.

Alistair Darling: The Public Accounts Committee and Select Committee on Transport have both recently examined aspects of personal safety on the railway. The Department has, of course, received a number of approaches on the subject from hon. Members and others.

Sadiq Khan: I am grateful for that answer. Balham station in my constituency has the sixth worst crime figures out of all the stations run by Southern Railway. My right hon. Friend is aware of the excellent safer station campaign begun by my hon. Friend the Member for Brent, South (Ms Butler) and the Evening Standard. In light of the failure of train operating companies to provide fully staffed stations, and bearing in mind the huge success of British Transport police in making passengers feel safer and in actually making stations safer, what plans does he have to review both the powers and the numbers of British Transport police?

Alistair Darling: As the House is aware, we are considering how best to focus the BTP's activities, primarily with a view to improving safety on stations. My hon. Friend and his colleagues have rightly drawn attention to the importance of making sure that stations are as safe as possible. I think that I am right that Balham station is staffed for the time that it is open, but I hope that the additional BTP officers that we have funded over the past couple of years will also help, as well as the increased use of closed circuit television on both trains and stations. He is right that we should continue to do everything that we can to make stations as safe as possible.

John Redwood: What action are the Government taking to examine how passengers can be safer on trains in the event of rapid deceleration or derailment? Is any work going on to secure luggage, to give people the option of a belt, or to improve the design of carriages so that there are fewer hard objects and sharp-edged surfaces, as the difference between the inside of a train and a modern car in the standard of safety is scandalous?

Alistair Darling: Yes, work is going on. Specifically, following the tragic accident and derailment in Berkshire in 2004, the Rail Safety and Standards Board is considering the lessons to be learned. Trains in general are much safer and better constructed than they were in the past. There is a lot of evidence to show that, provided that people remain within the train at a time of rapid deceleration or derailment, they have a better chance of not being injured than if, for one reason or another, they are flung out of the train. In addition to that work, we constantly do everything that we can to use all the modern techniques available to make trains as safe as possible. Self-evidently, trains are different from cars. The right hon. Gentleman has previously raised with me the question of seatbelts, and that is still to be investigated, but I assure him that we are considering that.

Dawn Butler: Will my right hon. Friend tell the House what he is doing to get train operating companies to give passenger safety a higher priority? As my hon. Friend the Member for Tooting (Mr. Khan) said, I have been working hard with Silverlink and the Labour-run Brent council to ensure that stations are properly staffed and lit. A clear message must be sent that safety must come before profits.

Alistair Darling: My hon. Friend has done a great deal to highlight the issue of safety in her constituency and in London generally. The rail companies are acutely aware that, if we continue to see more and more people using trains, we must ensure that stations are safe. That is why we have increased significantly the funding available to British Transport police, both to increase numbers of staff, including special constables, and to make capital expenditure available to improve the safety of stations. Train operating companies must also play their role. As I mentioned earlier, closed circuit television is being used on stations and nearly a third of rolling stock has been replaced over the past seven or eight years, much of which has CCTV on board. The mainstream police forces also have their role to play. Nobody in London, particularly after the Evening Standard campaign over the past few weeks, can be in any doubt that safety is important. Different approaches must be applied at different stations, but we are right to keep the issue at the front of our minds.

Peter Bone: My constituents are concerned about the ever-increasing number of people using trains from Wellingborough who, when they get on are forced to stand because of overcrowding, which must be a danger to personal safety. What does the Secretary of State have in mind to increase capacity on the Wellingborough-London line?

Alistair Darling: As I have said during the past few Question Times, there is no doubt that, as more and more people use the railways, we must increase capacity on the lines, not just in the hon. Gentleman's area but elsewhere. We have significantly increased capacity on the west coast main line, but there are plans to increase it in other areas as well. The objective must be to make rail travel as safe, and as comfortable, as possible, but if we are to increase capacity significantly we must all sign up to increased investment, because the railways cost money to run. Unfortunately, so far the Conservative party has failed to join us in that.

Rail Safety

Brian Iddon: Why there is no statutory limit to the number of standing passengers permitted in a train carriage.

Alistair Darling: All trains are designed to operate safely and effectively even when fully loaded. Franchise conditions nevertheless require operators to take appropriate steps to deal with the need for passengers to stand.

Brian Iddon: When my constituent Mrs. Marshall complained about the grossly overcrowded commuter trains between Bolton and Manchester, she received a letter from a customer relations officer at Northern Rail Ltd containing the following statement:
	"It is not possible to dangerously overcrowd a train, rail vehicles are designed to operate safely when crush loaded."
	Does my right hon. Friend agree with that statement or does he agree with me that, if my constituents are to be persuaded to give up their cars and travel into Manchester by train, statements like that are not helpful?

Alistair Darling: I agree that the letter could have been phrased more judiciously. I think there are times when some customer relations officers could benefit from further training—and, indeed, benefit from the huge increase in the amount that we have invested in further education to improve people's skills and standards.
	As my hon. Friend is no doubt aware, the TransPennine Express group will introduce new trains over the summer. That will increase capacity between Bolton and Manchester, for example—I know that there has been concern about overcrowding on that line—and it also demonstrates that if people are prepared to devote the necessary resources to improving the railways, it is possible not only to carry more people but to cater for the greater number who are leaving their cars and using trains. Who knows? The railway companies might even improve their communications.

Ann Winterton: Many trains are overcrowded at peak times. All those people have paid reasonably high fares to travel in that way, so why should they be packed in like sardines? Does the Secretary of State recall that concern has been expressed many times about the transport of live animals? I suggest that the transport of people should receive the same attention and that train companies should be required to do something about chronic overcrowding.

Alistair Darling: I agree with the hon. Lady, but remind her that, if we are to increase capacity to meet the growing demand for rail travel, that will mean spending more money on longer trains and longer carriages.

Ann Winterton: What about extra carriages?

Alistair Darling: Extra carriages are highly desirable, but they cost money. At some stage, therefore, the Conservative party will have to acknowledge that we must continue to spend a considerable amount on the railways if we are to see improvements.
	That is not the only thing that is necessary. We can improve the track—which, again, costs money—and we can get more trains running on the line. We can also ensure, by means of better timetabling and better price structures, that those who do not need to travel at peak times can take advantage of lower prices at other times. Our key task, however—especially in the north-west, where the hon. Lady's constituency is—is to make sure that we spend the money that is needed. It cost nearly £8 billion to upgrade the west coast main line. The reason it cost so much is that, during the previous 25 years, hardly any money was spent on it when it should have been spent.

Gwyn Prosser: Rail passenger safety is a matter of concern to all of us. That is why my constituents in Dover and Deal are waiting eagerly for the result of the rail inspectorate's report on Shakespeare cliff tunnels, which will allow the provision of a direct high-speed rail link between London and Dover. Has any progress been made?

Alistair Darling: As my hon. Friend has said, a study is being carried out and I suspect that major works will be necessary, given the tunnel's size. I know that he is concerned about this issue, in that he would like the high-speed train link to extend to Dover. I cannot give him a publication date for the study, but I suspect that it will not be published for some time yet. Obviously, we will need to look at it, because whatever happens, it will probably have spending implications.

Chris Grayling: I listened carefully to the Secretary of State and it is true when he says that he is spending £87 million a week on the railways; indeed, he has increased the rail spending budget quite significantly in the past few years. The problem is that, according to the Office of Rail Regulation, between now and 2014 no new trains will be travelling on our railways—there will be no additional passenger train kilometres—and the Government forecast a jump in the number of passengers of some 30 per cent. Does the Secretary of State appreciate that overcrowding is an urgent issue? What projects does he have lined up, starting within the next few years, that will make a difference?

Alistair Darling: As the hon. Gentleman will be aware, the ORR must decide shortly—by the summer of next year, I think—in conjunction with the Government, how much money will be spent on the railways in the period to 2014. Alongside that, we will publish a White Paper setting out our view of the additional capacity needed. As he rightly says, we have doubled rail spending in the past few years—a move that was absolutely necessary and long overdue. Perhaps he will tell us now, or when he comes to the Dispatch Box again, whether he is prepared to match us on rail spending. I see from an interview that he gave to the widely respected and widely read Coach and Bus Weekly—

Mr. Speaker: Order.

Chris Grayling: Once again, I ask the Secretary of State a straightforward question and I do not get an answer. The truth is that, if we are to make a difference to overcrowding on our railways, we need action soon, not White Papers or reviews. We need actual projects with time frames and starting dates, so let me ask the Secretary of State again: what projects does he have lined up, as part of the £87 million a week he is spending on the railways, starting in the next two or three years, that will begin to make a difference to overcrowding?

Alistair Darling: We are spending very substantial sums on improving the network to get more capacity out of it and we are making improvements in terms of the amount of money spent on rolling stock. For example, the Bill that will make Crossrail possible is going through the House and there are projects such as Thameslink throughout the country. Unless the hon. Gentleman is prepared to match us on the necessary spending, none of these projects will happen. We have made huge improvements to the railways and it is interesting to note that the Conservatives have both opposed every single penny that we spent in the past and cannot even match us on the money that we need to spend in future.

Chris Bryant: Although there are problems with the local train service, my constituents do not normally have to face significant overcrowding on trains. However, there are times when they do: when major international rugby matches take place in Cardiff. At such times, many more people travel by train than usual, many of whom are children travelling with their families, which is great to see. We have seen significant changes in recent years. For example, the British Transport police and others co-operate to ensure better throughput of people, so that they can travel safely. Can we not look more closely at ensuring that proper transport services are provided for big international matches, be they in Cardiff or in London?

Alistair Darling: Yes. The short answer is that improvements can be made. I know that there have been difficulties with providing train services for events at the millennium stadium, and I am sure that the railways can do better.

Rail Fares

Simon Hughes: What assessment he has made of the differences in rail fares between rail operators; and if he will make a statement.

Alistair Darling: Regulated fares are monitored to ensure that train operators comply with the limits set for these fares. Other fares are a matter for train operators themselves.

Simon Hughes: Does the Secretary of State agree that a factor that puts people off switching from travelling by car to travelling by train is the very high fares? In some places, fares are nearly 10 times higher than those for comparable journeys on mainland Europe. Moreover, in some parts of Britain, people pay four times as much to travel with one company as others pay to travel the same distance with another company. Will the Secretary of State take a serious look at the issues of cost and confusion and try to establish a proper fare structure that provides an incentive to travel by train, rather than a disincentive?

Alistair Darling: We need to keep fares under constant review, but given that more and more people are choosing to use the railways, that tends to suggest that they want to use them, are using them and can afford to do so. Indeed, if he compares the prices charged in this country with the rate charged per mile in continental Europe, he will see that many of our fares compare very favourably, and that many are in fact better. He should avoid simply concentrating on the walk-on first-class and standard fares, because many other fares are a lot cheaper than that. When zonal charging is introduced in London, which will affect his constituents, people travelling from one London zone to another will pay the same rate, no matter which part of London they are travelling in. I am sure that his constituents will very much welcome that.

John Grogan: Does my right hon. Friend agree that some of the most competitive rail fares are offered by Hull Trains, the open-access operator that serves Selby, among other places? Does he welcome the rail regulator's decision to allocate three paths on the east coast main line to Grand Central Trains, another open-access operator? That will link some towns and cities in the north-east and Yorkshire to London for the first time, and also offer much more competitive fares for the journey from York to London.

Alistair Darling: I agree that Hull Trains does operate some good services and offer fares that are cheaper than the alternatives. However, I repeat that we must also have regard to the effect that the recent decision in respect of Grand Central Trains will have on Great North Eastern Railway's ability to provide its services, especially the half-hourly service that it wants to provide to Leeds. That is being looked at, and it may be possible to reach an agreement that allows Grand Central Trains to operate and also allows GNER to fulfil its obligations in providing that service to Leeds. It is important to remember that the network has to work as a whole and that it is not possible to look at one service in isolation, although most people using Hull Trains greatly appreciate the services that it provides.

Stephen Hammond: In his response to my hon. Friend the Member for Epsom and Ewell (Chris Grayling), the Secretary of State revealed that the Government have few plans, if any, to increase capacity, for we all know that Thameslink has no start date or funding. In the past year, however, there have been price rises that passenger groups have described as "eye-wateringly" high. Are not those rises evidence that the Government have only one strategy to combat over-capacity, and that is to price passengers off the railway?

Alistair Darling: No, that is not right. As I said earlier, the range of prices offered on different routes across the network is quite wide. Some first-class, walk-on fares are expensive and have gone up, but other fares are much cheaper in real terms than they were, say, 10 years ago. Then, passenger revenue—the money coming from passengers expressed as a percentage of spending—was at 85 per cent. Today it is 57 per cent., which shows that the taxpayer is paying more now than under the previous Conservative Government.

Gwyneth Dunwoody: The Secretary of State will have noticed that, to take advantage of cheap fares in this flexible system, one has either to be a computer geek or aged about 13. Will he suggest to some of the train operating companies that they could undertake the revolutionary task of making it possible for people to find out when and how often cheap fares are available?

Alistair Darling: I would not claim to be the sort of expert that my hon. Friend describes, but I did not find it too difficult to discover, for example, that the cheapest return fare from London to Birmingham is £20, to Leeds is £19, and to Edinburgh is £25. On any view, those fares are fairly cheap. It is true that first-class or walk-on fares are higher, but we are trying to strike a reasonable balance between what fare payers must pay and what the general taxpayer must pay. The most important thing is to ensure that we continue to spend the money needed to have more trains and so increase capacity on the track. We will set out our plans in the 2007 spending review. If we are to continue to have a railway that serves the interests of passengers in Britain, we will have to maintain that funding, not year on year but decade on decade.

Heathrow Airport

Vincent Cable: To what extent Government decisions on the number of permitted flights at Heathrow are informed by projected levels of carbon dioxide emissions.

Alistair Darling: The current limit of 480,000 air transport movements a year at Heathrow is a condition of the 2001 planning consent for terminal 5 and was fixed primarily on grounds of noise. We believe that the best way of ensuring that aviation contributes to the goal of climate stabilisation is through a well designed emissions trading scheme, which is why we are pressing that in Europe and internationally.

Vincent Cable: I welcome the Government's commitment to the CO 2 emissions trading system, but as it will not become effective until 2012 at the earliest, would not it be useful if the existing cap on flights at our major airports were to serve wider environmental purposes as well as narrow, local concerns?

Alistair Darling: I appreciate the hon. Gentleman's concern about the level of carbon dioxide at Heathrow and other airports, which is due not just to aircraft but also to other activity—the air quality at Heathrow is affected by the amount of traffic, primarily on the M25 and the M4.
	A range of things can be done. As the hon. Gentleman knows, the fuel efficiency of aircraft has improved by 50 per cent. over the past 30 years; today's aircraft are about 75 per cent. quieter than in the 1960s. Other measures are being taken at Heathrow to improve air quality and if road pricing is introduced in this country that, too, will reduce the overall level of harmful emissions in the environment. In relation to aircraft, it is important that we do everything we possibly can—whether it be looking at landing charges or the emissions trading scheme—to reduce the amount of CO 2 , which, as the hon. Gentleman says, is a matter of legitimate concern.

Edward Garnier: As the Secretary of State knows, aircraft movements at Heathrow are under his control, because Heathrow is a designated airport under the Civil Aviation Act 1982. Fairness requires that an airport that is even busier than Heathrow was when it was designated—namely, Nottingham East Midlands airport—should also come under the Secretary of State's control. Will he bear inmind that the air pollution littered all over Leicestershire is just as bad as the air pollution that covers the constituency of the hon. Member for Twickenham (Dr. Cable)? Does not he think that it is high time that the Department for Transport got its head round the environmental pollution that is wrecking Leicestershire just as much as it is wrecking west London?

Alistair Darling: The hon. and learned Gentleman is quite right to say that we should be concerned about the environmental consequences of airports and aircraft, but the east midlands economy has greatly benefited from the presence of the airport. It has created jobs and a lot of freight arrives there, so whether we are considering the east midlands airport or Heathrow, it is important to strike a careful balance, to ensure that we meet our environmental obligations while recognising the economic importance of such airports, which are well used by the hon. and learned Gentleman's constituents and others.

The A47

Keith Simpson: What criteria his Department is using to assess the need to dual the A47 in Norfolk.

Stephen Ladyman: The Department is not currently assessing the need to dual the A47 in Norfolk. The A47 was assessed through the Norwich to Peterborough multi-modal study, which reported that dualling was an issue for the longer term, but that some sections should be reviewed towards the end of the decade.

Keith Simpson: Many of my constituents will find that   disappointing and unsatisfactory, in particular Mrs. Andrea Jackson, whose son was tragically killed on the A47 at the Mattishall junction just west of Norwich. I accompanied her to No. 10 to hand in a petition signed by 10,000 local people from a small area in mid-Norfolk, urging the Secretary of State and the Prime Minister to consider, at the very least, remedial action at that junction, which the Highways Agency has been looking into for some time. Surely, death and injury must be the most important criteria, so I am sorry to say that the Minister's answer was not satisfactory.

Stephen Ladyman: Remedial action at a particular junction is one thing; a requirement for us to dual an entire stretch of road, over many, many miles, is another thing entirely. We are indeed looking at the report into the tragic accident to which the hon. Gentleman referred and when we have completed our review of it we will report to him and the local community on how we shall make that junction safer. Safety is one of the factors that we take into account, but only a limited amount of money is available. Of the £1.9 billion for the three years up to 2007–08 that the Highways Agency will spend on the entirety of English trunk roads, fully a quarter will be spent in the east of England so the hon. Gentleman and his constituents are actually doing rather well.

Henry Bellingham: Is the Minister aware that one of the worst parts of the A47 is the stretch through Middleton and East Winch in my constituency? Both parish councils have been pressing for a dual carriageway bypass for many years. When can they expect action from the Government?

Stephen Ladyman: As I have just explained, the multi-modal study suggested that a case may be made for certain parts of the A47 to be considered for dualling at the end of the decade. Currently, there are no short or medium-term plans for dualling along its entire length. Considerable improvements have been made already to parts of the A47, but we must balance the priorities across England and, indeed, across the east of England—and currently, the region and the local county councils are not suggesting to us that dualling the entire length of the A47 is a priority.

Sea Transport of Goods

James McGovern: What steps the Government are taking to support the transport of goods by sea.

Stephen Ladyman: The Government have introduced several measures to support the transport of goods by sea, including water freight grants, of which £22 million has been awarded since 2000 for shipping projects. A further measure—the tonnage tax—provides certainty and clarity about tax liabilities for those shipping companies that choose to opt into the regime.

James McGovern: The Minister may be aware of a recent report from an organisation called Sea and Water, which suggests that, until road pricing is introduced, which would impose a fair charge on hauliers, there is a case for the Government to support more businesses that wish to transport their freight by sea. That view certainly has support in Dundee, where the Michelin tyre factory, which employs more than 600 people from Dundee and the surrounding area, has real concerns about the reduction in ferry crossings on the Rosyth to Zeebrugge route from five to three sailings a week. What plans do the Government have in the short-term to ensure a level playing field in the near future between businesses that transport freight by road and those that do so by sea?

Stephen Ladyman: My hon. Friend will realise that specific support for the scheme that he mentions would come under the responsibilities of the Scottish Executive, so I cannot comment too much on that, other than to say that the Department for Transport and the Scottish Executive collaborated to provide £11 million to start that ferry route. He makes a very fair point, however, in saying that we must encourage the movement of goods by sea. Short-sea shipping needs to be considered as an important option for people who need to move goods. That is why we have the freight facilities grant scheme, which is making substantial sums of money available to people who consider short-sea shipping as an alternative to road transport.

Vehicle Emissions

Danny Alexander: If he will make a statement on progress being made in lowering the average level of emissions per vehicle.

Alistair Darling: Since the early 1990s, pollutant emissions from petrol cars have reduced by around 95 per cent. Diesel cars have delivered up to 80 per cent. reductions. Over the same period, the average level of CO 2 emissions from new cars has fallen by about 11 per cent. The House may be interested to know that Britain's top 10 best-selling cars are all cleaner than the Lexus.

Danny Alexander: I am grateful to the Secretary of State for that reply, but as the UK still has the fourth highest emissions from new cars in the European Union, will he impress on the Chancellor of the Exchequer the need for much stronger incentives for fuel-efficient cars with the banding of vehicle excise duty, while assisting the drivers of such vehicles in remote and rural areas, where a car is a necessity and fuel prices are at the highest, by taking advantage of the derogation allowed under EU law to decrease fuel duty in such areas?

Alistair Darling: On incentives, the changes that the Chancellor made to the company car tax regime have resulted in a much more fuel-efficient fleet. We are also introducing the renewable transport fuel obligation, which will result in the equivalent of 1 million cars being taken off the road.
	On the present voluntary agreement among European car manufacturers, the time has now come for us to consider mandatory agreements, because not enough progress is being made and most people would expect car manufacturers right across Europe to make cars cleaner than they are at present.

Ormskirk Bypass

Rosie Cooper: When he expects work on the Ormskirk bypass to begin.

Stephen Ladyman: We are currently considering the north-west region's advice on the priority that it attaches to this and other major transport schemes in the region within the indicative funding allocation for major transport schemes that were announced last July. We expect to respond to the region's advice later in the year.

Rosie Cooper: Can my hon. Friend give me his assurance that Government resources are available for high-priority local transport schemes that have not been included in the regional transport priorities plan, such as the Ormskirk bypass in my constituency? Will he meet with me and Lancashire county council to discuss the future of the Ormskirk bypass?

Stephen Ladyman: I am well aware of my hon. Friend's support for that scheme. She has been a doughty campaigner for it since she entered the House. I am hesitant to give her the entire assurance that she is looking for, since the county council has made the scheme only its second priority and we are still talking to the region about its priorities, but I understand her desire to see the scheme move ahead and if it would help her to understand the issues, I would be happy to meet her to discuss them.

DUCHY OF LANCASTER

The Chancellor of the Duchy of Lancaster was asked—

Civil Service (Diversity)

Lyn Brown: If he will make a statement on progress with increasing diversity within the civil service.

Jim Murphy: The civil service has made good progress towards increasing diversity, including at senior levels, but there is still much more to do. We have published and are implementing the diversity 10-point plan. Its aim is to build on the progress so far to deliver a civil service that is truly representative of society.

Lyn Brown: Does he agree that the lack of informal personal networks, and therefore a resultant lack of information about processes, can disadvantage communities? What does he think that we can do to make the playing field more equal?

Jim Murphy: I agree with my hon. Friend and I know how interested she is in these issues. More can be done, but there has been progress over recent years, as I am sure that she would be first to acknowledge. Among the initiatives being undertaken are a summer development programme for black and minority ethnic citizens and a summer placement scheme for those who are disabled. In particular, we can do more to reach out to those networks of people who lack a formal education the first-time round—those who are seeking a second chance in life—and to try to make the civil service an attractive career option for people who lack the formal and informal networks that she speaks of.

Oliver Heald: Does the Minister agree that it would help the Government's diversity agenda, and the recruitment of women in the civil service, if there was a civil service Act to protect them from being asked to do things that they do not consider appropriate? Does he think that female recruitment and progression will be helped or hindered by the recent revelations from the Office of the Deputy Prime Minister?

Jim Murphy: The fact is that we waited 148 years for even a draft civil service Bill. We now have that Bill. The hon. Gentleman will just have to be a little more patient when it comes to the Government's specific consideration of a civil service Act. There is, of course, a consultation on the civil service code. Many thousands of people have participated in that and it has been very helpful. Just to reassure him—because I know how genuinely interested he is in these matters—when his party was last in power, 17 per cent. of the civil service were women, but the figure is now up to 29 per cent. That is remarkable progress, but we accept that much more needs to be done.

Information Technology

Kitty Ussher: If he will make a statement on the Government's transformational strategy for information technology.

Jim Murphy: Information technology is an essential component of the Government's programme to deliver and reform public services. As I announced on 29 March to the House, the implementation plan for the transformational government strategy has been published.

Kitty Ussher: I thank the Minister for that response and I welcome the transformational work that has been done, but does he not agree that there is not much point in people being able to sort out their tax and benefits online, if they cannot afford a computer? Will he therefore commit to doing more to improve IT access and, in particular, broadband access in poorer communities, such as those that many of my constituents live in?

Jim Murphy: My hon. Friend has raised these matters before and she is right to do so. Partly in the social exclusion unit and also in the Cabinet Office, we are working to ensure access to wireless broadband, in particular. Many of the households concerned do not have a fixed telephone line, so wireless broadband access is really important for many of our constituents across the country. I have seen projects around the country, such as Eastserve in east Manchester, which serves the type of community that she mentions. In addition, there are about 6,000 UK online centres, which enable low-cost access to the internet for those who do not have the opportunity, as yet, to have computers and broadband access at home.

Justine Greening: I am very pleased to hear that the Minister is developing a transformational strategy for IT, but many of my constituents who are struggling to get their child support payments through the new CS2 system, which is, in many respects, performing worse that the original CSCS system, will find it laughable that the Government are trying to transform even more IT systems. The Government's progress on transforming systems has been a disaster—does the Minister agree with that?

Jim Murphy: No, I would not agree with that at all. The Child Support Agency is under the management of a new operational improvement plan that is being undertaken, and the Department for Work and Pensions and EDS are working together on a serious problem. No one on either side of the House would suggest that there has been anything other than a serious systems failure. However, the hon. Lady's constituents and mine will realise that most Government projects that are enabled by IT do work, such as the payment modernisation programme, tax self-assessment and the internet job bank. As we further drive the transformational Government programme, we will increasingly rely on well-defined, well-structured and well-costed IT-enabled projects to make public services more relevant and personal to the citizens whom we all serve.

Meg Hillier: My hon. Friend rightly welcomes local initiatives to encourage people's access to computers. Is he aware of the Shoreditch digital bridge, which is being formally launched next week? What support are the Government giving such local projects that bring IT and access to technology into people's living rooms in an innovative way?

Jim Murphy: I am not aware of the specifics of the Shoreditch bridge, but will be happy to become acquainted with it and, if the opportunity arises, to make a visit so that I can listen and learn. There are innovative projects throughout the country. I visited the Western Isles of Scotland, which is at the geographical periphery of this United Kingdom, where IT-enabled projects are helping to maintain schools and education, helping an island population to play their part in that and enabling a crofter, of all industries, to maintain his business. There are thus excellent examples. It is important that we learn from good experiences so that mistakes are not replicated and best practice can be copied throughout the country.

David Heath: The most transformational thing that the Minister could do would be to get IT systems to talk to one another across the Government, or even, say, in one Department. Let us take, for example, the Home Office, which wants to keep a database of the personal details of every person in the country. Does the Prison Service computer talk to the immigration and nationality directorate computer? Does either communicate with the police national computer or the Courts Service computer? If none of those things happens, can we go back to an easier technology, with each prisoner's file having a big red stamp on the front reading, "Don't release—deport"?

Jim Murphy: The hon. Gentleman makes his point in his own way. The fact is that we have challenges regarding IT systems, many of which were previously constructed in silos. We need to ensure that across Government the systems talk to each other coherently and sensibly. There are practical examples of that happening. I do not know whether the hon. Gentleman has had a chance to do this, but I visited a project in Leamington Spa in which all those involved in the criminal justice system are enabling such conversation to take place and thus delivering for the people of the area. The hon. Gentleman is right that we have to approach data-sharing in a way that ensures that we cut across operational boundaries and have effectiveness in government, but that we do so sensitively to protect individuals' liberty and privacy.

Cyber Security

Mark Pritchard: If he will make a statement on co-ordination of cyber security within Government.

Jim Murphy: The central sponsor for information assurance is responsible for the UK Government strategy for information assurance. It provides a co-ordination role by looking at the work being done across the Government and identifies gaps and overlaps and works to address them.

Mark Pritchard: I am grateful to the Minister for that reply, but is he confident, given that al-Qaeda has admitted to wanting to create aggressive viruses, that our critical energy infrastructure and military and intelligence services systems are fully robust against any aggressive viruses and terrorism?

Jim Murphy: I know that the hon. Gentleman takes a keen interest in these matters and that, previously, he has rightly and appropriately declared a remunerated directorship of an internet company. I know that he is to meet officials from the Civil Contingencies Secretariat next week to discuss the specific points that he has raised. Such work is being done on a cross-party basis and I think that that is the right way to progress.
	Apart from the terrorist threat online that the hon. Gentleman has rightly raised, and without wishing to appear complacent, our current assessment is that the greatest e-enabled threat to our system is from criminal gangs operating online. We are taking strenuous steps across government and with the business community to address the real dangers that exist.

Andrew Miller: My hon. Friend will be aware of the work of the Information Assurance Advisory Council. He will be aware also that the national high tech crime unit and others liaise with IAAC on issues related to information security. Does my hon. Friend agree with me that other Government Departments can learn lessons from the private sector? Will he encourage active participation between Government Departments and IAAC, which is chaired by Dame Pauline Neville-Jones?

Jim Murphy: I know that my hon. Friend takes a real interest in the subject. Indeed, I had the opportunity to discuss these matters with him and his constituents when I visited his constituency last year. He is right to say that Government have much to learn from industry, but the private sector has much to learn from Government. It is not a competition about who has the most to learn from whom. We are in this together—the public sector and the private sector. That is why projects such as Get Safe Online are important because they encourage people to take a common-sense approach to their personal finance and to apply that approach to their online existence. There is a great deal going on and we are determined to work with the business community, as my hon. Friend suggests.

Anne Main: On a point of order, Mr. Speaker

Mr. Speaker: If the hon. Lady will give me a moment. I inform the House that the ten-minute Bill will not be moved today.

Points of Order

Anne Main: On a point of order, Mr. Speaker. Last week, the Home Secretary made a statement regarding the removal and deportation of foreign nationals. I asked the right hon. Gentleman a specific question, which was whether people who had committed a serious sexual offence were put on the sex offenders register before they were released, which is vital if we are to be confident that the registers can help our local police forces. The right hon. Gentleman replied:
	"I assure the hon. Lady that precisely the same procedures on the sex offenders register applied to foreign nationals whom she has described as apply to anybody whom commits a sex offence.—[Official Report, 26 April 2006; Vol. 445, c. 588.]
	Given the rather alarming news that has appeared in some of our newspapers that the police have no details on their registers, has the Home Secretary made any effort to come to the House to correct any reports on these matters?

Mr. Speaker: The hon. Lady will know that an urgent question was applied for today. She shakes her head, so perhaps she does not know. However, the application was made. It was refused on the ground that the Home Secretary assures me that he will be making a statement tomorrow. Perhaps the hon. Lady should try to pursue her question tomorrow.

Julie Kirkbride: On a point of order, Mr. Speaker. I would be grateful if you were to advise the House on the application of the ministerial code, especially as it applies to Parliamentary Private Secretaries. You might be aware, Mr. Speaker, that the hon. Member for Ealing, North (Stephen Pound), a PPS at the Home Office, has demanded the resignation of a Cabinet Minister,—not his boss but the Deputy Prime Minister. Will you tell us, Mr. Speaker, whether the idea of collective responsibility applies to the ministerial code and whether the Member for Ealing, North might be considering his position?

Mr. Speaker: The hon. Lady has been in the House for some time now. She might know that the ministerial code is a matter for the Prime Minister and not for the Speaker.

Orders of the Day
	 — 
	Finance (No. 2) Bill

(Clauses Nos. 13 to 15, 26, 61, 91 and 106, Schedule 14, and new Clauses relating to the effect of provisions of the Bill on section 18 of the Inheritance Tax Act 1984)
	Considered in Committee.

[Sir Alan Haselhurst in the Chair]

Ordered,
	That the order in which proceedings in the Committee of the whole House on the Finance Bill (No. 2) are to be taken shall be: new Clauses relating to the effect of provisions of the Bill on section 18 of the Inheritance Tax Act 1984, Clause 61, Clause 26, Clause 91, Schedule 14, Clause 106 and Clauses 13 to 15.—[Dawn Primarolo.]

New Clause 1
	 — 
	Application of section 18 IHTA 1984

'Notwithstanding any provision of this Act, section 18 of the Inheritance Tax Act 1984 (transfers between spouses) shall continue to apply to transfers of value between spouses to the extent to which they are exempt transfers under the provisions of that section.'.—[Mrs. Villiers.]
	Brought up, and read the First time.

Alan Haselhurst: With this it will be convenient to discuss the following: Amendment (c) to the new clause, in line 1, leave out from 'Act' to end of line 4 and insert—
	'all transfers of value made on or after 22nd March 2006 which would have been exempt under section 18 of the Inheritance Tax Act 1984 (transfers between spouses) if made immediately prior to 22nd March 2006 shall continue to be exempt.'.
	Amendment (a) to the new clause, in line 2, at end insert—
	'written into trust by will, life assurance policy and lifetime gift'.
	Amendment (b) to the new clause, in line 3, after 'spouses', insert 'and civil partners'.
	New clause 2—Application of section IHTA 1984 (No. 2)—
	'Notwithstanding any provision of this Act, section 18 of the Inheritance Tax Act 1984 (transfers between spouses) shall continue to apply to transfers of value written into trust by will, life assurance policy and lifetime gift to spouses and civil partners for two years until——
	(a) a full consultation has been undertaken about the operation of that section;
	(b) a Regulatory Impact Assessment of the operation of that section has been completed; and
	(c) the impact of the Act on transfers of value written into trust through wills, lifetime gifts and life assurance policies has been calculated.'.
	New clause 3—Application of section IHTA 1984 (No. 3)—
	'Notwithstanding any provision of this Act, all transfers of value made on the death of a person on or after 22nd March 2006 but before 6th April 2008 which would have been exempt under section 18 of the Inheritance Tax Act 1984 (transfers between spouses) if made immediately prior to 22nd March 2006, shall continue to be exempt.'.

Theresa Villiers: I beg to move, That the clause be read a Second time.
	The aim of the new clause is to ensure that husbands and wives continue to be free of the burden of inheritance tax when they transfer property to each other; to ensure that nothing in the Bill narrows the operation of the long-established spouse exemption from inheritance tax in section 18 of the Inheritance Tax Act 1984; and to ensure that all transfers covered by section 18 before Budget day will continue to be covered, regardless of other provisions in the Bill, including schedule 20. I am not sure that the Government are minded to accept new clause 1, but if they do so, my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) will wish to move amendment (c). The Opposition are happy to support that amendment, and hope to press the matter to vote, as it has the same general goal as new clause 1, but has more watertight drafting. In the unlikely event that new clause 1 and amendment (c) are accepted there would still be a number of significant problems with schedule 20, to which the Opposition propose to return in Committee.

Chris Bryant: The hon. Lady said that her new clause applies to spouses. For the avoidance of doubt, will she accept amendment (b), which could improve it by including civil partners?

Theresa Villiers: The hon. Gentleman makes a very good point, which I have already taken on board. In my view, section 103 of the Finance Act 2005 means that new clause 1 covers civil partners as well. Essentially, section 103 and the related delegated legislation give civil partners in this context the same rights as spouses. If we solve the problem for spouses, we automatically solve it for civil partners, too.
	The Opposition believe that it is vital to save the spouse exemption for husbands, wives and civil partners for the reasons that it was introduced in its present form by the Callaghan Government in 1975—to reflect society's concern for the welfare of bereaved spouses, and to mitigate severe hardship when matrimonial homes had to be sold to pay the tax bill. There are two new modern reasons to reinforce the need to retain the exemption. The first has already been raised by the hon. Member for Rhondda (Chris Bryant). It is important to preserve the spouse exemption for civil partners, to whom it has only just been granted. As I said, if we are successful today in protecting spouses, section 103 of the Finance Act 2005 will protect civil partners. Secondly, rising house prices, particularly in London and the south-east mean that many more middle-income families are caught by inheritance tax, and could therefore be hit by the changes in the Bill.
	The Law Society recently conducted a survey asking its members which of their clients would be affected. I shall quote just a few of the answers. They were people from
	"every walk of life—teachers/nurses/engineers/computer professionals/office workers/ bank staff/engineers/manual workers—anyone who lives in their own home in the South of England . . . police officers . . . Civil servants, local government officers, doctors . . . shopkeepers: retired people of moderate means who have been prudent . . . office managers . . . self-employed small business men and women (taxi drivers, carpenters, joiners, plumbers, builders, decorators). Ordinary families working hard to pass saved income to children. Second-marriage couples with an average-priced property wishing to make flexible arrangements for spouse and children. All types, not necessarily high earners but prudent savers and budgeters. Any couple with a 3 bed detached or 4 bed semi who have young children. Regular middle income earners. A whole range of ordinary people—people who have tried to work hard and save for their children's future."

Ann Coffey: Will the hon. Lady tell me at what level she proposes to set inheritance tax?

Theresa Villiers: We are not talking about the bands of inheritance tax—that is not the debate—but about new additional and penal inheritance tax charges that will apply to circumstances that are now altogether free of inheritance tax.
	On Second Reading, the Paymaster General said that the measures on trust proposed in the Bill were aimed at preventing "wealthy individuals" from
	"using trusts . . . to shelter their wealth from inheritance tax."—[Official Report, 24 April 2006; Vol. 445, c. 460.]
	However, trusts seldom give rise to any tax advantages whatever; they are generally tax-neutral. As the impressive coalition of professionals campaigning against these measures has pointed out, the trusts penalised by the Bill are generally motivated by unobjectionable non-tax objectives: family and social objectives, which will become prohibitively expensive as a result of the proposed measures.
	Since estate duty was introduced in 1894, trusts have received broadly the same tax treatment as outright gifts. For example, under current rules, a gift on a flexible trust to a spouse, with the remainder going to children at the age of 25, is taxed in the same way as an outright gift of the property to the spouse, which is then passed on to her children on her death. Thus, the tax exemption means that no tax is charged on the first death, but the capital is charged at the full rate when the surviving spouse dies and the property passes to the children.
	Far from removing some sort of privileged status, as the Paymaster General claimed on Second Reading, the Government are effectively proposing to introduce additional new and penal tax charges on trusts, treating them more harshly than an outright gift. The Chancellor is actually tearing up a 100-year consensus, repeated only recently by the Revenue in its attempt to maintain a tax system for trusts that does not provide artificial incentives to set up a trust, but equally avoids artificial obstacles to using trusts where they would bring significant non-tax benefits.
	Before Budget day, section 18 of the Inheritance Tax Act 1984 exempted gifts on trusts to spouses in exactly the same way as the system operated for outright gifts and transfers. Unless the Bill is amended, it will become almost impossible to set up a trust for a spouse without losing the exemption, as it will incur an immediate inheritance tax charge on the death of the first spouse. The spousal exemption will survive only in cases falling under the definition of an immediate post-death interest, complying with six very narrow and restrictive conditions set out in the new section 49A of the 1984 Act, as proposed in schedule 20.
	No one has yet been able to say with certainty how the six opaquely drafted conditions will apply in practice. It seems clear that severe problems will be caused by conditions 1, 3 and 4. Condition 1 states that the gift must take effect by will or intestacy. That means that spouses will no longer be able to set up trusts for one another during their life time without incurring the new charges. A particular concern is that it is not clear that condition 1 will be satisfied where a trust has been established not under a will, but under a pension policy or death in service arrangements, leaving the threat of the new charges applying in those circumstances.
	Condition 3 requires that the power to terminate the surviving spouse's life interest is exercised only by the spouse or with the spouse's permission. That sounds technically innocuous, but the net result is that a significant number of trusts created on divorce would fall outside the provisions of condition 3, with the risk of the new charges applying.
	Condition 4 provides that the life interest for a surviving spouse will qualify for the exemption only if, following its termination, assets pass absolutely to the beneficiaries. With very limited exceptions, if the property remains in trust after the death of the live tenant, the spouse exemption will not apply. The net effect of those conditions is that, if there is any flexibility in the trust, the spousal exemption is lost and a bereaved spouse or civil partner will face an immediate inheritance tax bill.

Michael Fallon: Given that we are dealing either with divorce or the death of one spouse, which is more likely to be the man than the woman, is not the net effect of the restrictions effectively to penalise women rather than men?

Theresa Villiers: My hon. Friend makes a powerful point. The measure will impact with disproportionate harshness on women.
	Because of the rule against flexibility, the spouse exemption will be lost in virtually every case where a trust is set up. Until Budget day, a lawyer who drafted a trust without flexibility might easily find herself on the end of a negligence suit. Indeed, flexibility in trusts has been considered so important that Parliament specifically inserted flexibility into trusts via section 32 of the Trustee Act 1925. The Government's response is to say that if people want to keep their spouse exemption, they can change their wills or vary existing trusts and opt for outright gifts or the restrictive trusts that comply with the conditions that I have just outlined in the new section 49A, but this is not an adequate answer.
	The proposals will have a disproportionate effect on many people who, for family reasons—not for tax reasons—do not wish to make outright gifts to their spouse. These people face the invidious choice between making arrangements that they believe are inappropriate for their family's welfare, or facing an unwelcome extra tax bill that could require the family home to be sold.

Helen Goodman: Can the hon. Lady explain what sort of family reasons those would be?

Theresa Villiers: Certainly. I will come to that in a moment.
	Flexibility is built into modern trusts to help people deal with the complexity of family life in modern Britain and provide responsibly for the future of their families. The Law Society survey to which I referred earlier reported one of its members as saying:
	"I prepare at least one will every week of my working life—the majority of my clients who have set up life interest trusts in their will do so to protect children from a first marriage whilst looking after the second spouse or as protection for the children of the same marriage—all this talk of tax evasion is nonsense. The traditional family set-up is no more—trusts have evolved in line with this—it is a shame that the Government has sought to undermine this."
	Typical everyday instances where people set up flexible trusts include, as the quote suggests, the need to provide both for a spouse from a second marriage and for the children of a first marriage. A trust can be an invaluable aid in achieving the difficult task of mediating between the interests of step-parents and stepchildren. Trusts are also used to provide for children when a surviving spouse is young and likely to remarry and possibly have children from a subsequent marriage, or to enable trustees to continue to look after the interests of a spouse when old age may mean that mental capacity is affected, or when people are not confident enough that they can foretell all the family circumstances that will apply in a few years. One must remember that wills may be made well in advance of death and in the expectation that they will hold good and provide the right answer for many years to come.

Helen Goodman: Can the hon. Lady explain why a person would want to set up a trust, rather than changing their will if, for example, they got married again or had more children? I do not see the need for a complicated trust device with special rules.

Theresa Villiers: The trust allows the testator to split the property between his second spouse and his children in a way that he believes is sensible and balances their interests. The typical arrangement is for the second spouse to be given access to the income from the property and the right to live in a property, but for the capital to be preserved and passed on to the children on death.
	The legislation ignores the realities of modern family life. Trusts provide an invaluable prop for those who are juggling the competing and sometimes conflicting interests of different family members—a prop that the Government wish to kick away. As Stephen Pallister of solicitors Charles Russell pointed out:
	"Thinking of the numerous and obvious reasons why a spouse might leave their estate for the other on death—health, financial difficulties, unstable personality, second marriage and wanting to preserve the capital for the children of a first marriage, etc.—this is a gross mistake by the Government."
	Even if people are prepared to sacrifice the flexibility that I have mentioned to avoid the new charges, there are further flaws in the Government's argument that there is no problem with their proposal because people can change their wills or trusts to prevent the new charges from applying. The first problem is that the power to vary the trust is exactly the type of flexibility that the Government seek to outlaw through the restrictive conditions on receiving the spousal exemption, so it seems odd that they are defending their actions by encouraging people to use the system that they propose effectively to outlaw.
	Secondly, many variations can be carried out only by going to court—for example, where children are involved—which may not give people permission to vary the trust. The costs of a High Court hearing in the chancery division are prohibitive and will not be justifiable in most of the cases covered by the new rules. Furthermore, there must be a question mark over how well the courts will cope with the significant burden of hearing so many cases.
	Frankly, it is not easy to see exactly what tax problem the Revenue is targeting with its proposals. It has indicated informally that its concern is a situation in which the surviving spouse gives up their life interest and distributes all assets to the trust for the next generation. If that is the Revenue's concern, then it is attacking the wrong target. It is not the flexibility in the trusts that allows people to reduce their tax bill in the situation that I have outlined, but the use of the potentially exempt transfer system, which exempts the transfer of the life interest from inheritance tax, if the spouse survives for seven years after they have given up the life interest.

Sharon Hodgson: Is it not the case that setting up trusts is just a way for a few wealthy individuals to avoid paying inheritance tax?

Theresa Villiers: As I have said, setting up a trust does not provide inheritance tax advantages. People set up trusts in order to look after their families.
	Rather than clobbering all flexible trusts, why not retain the current, long-established rules for trust taxation, which have worked well, but provide that if a spouse's life interest terminates during their lifetime and the assets pass to a continuing flexible trust, then it automatically gives rise to a chargeable transfer, in which case the potentially exempt transfer regime does not apply? That would achieve the result that the Revenue wants more effectively, and it would do so without inflicting the collateral damage of infringing on people's freedom to provide prudently for the future of their families in the way in which they want to and of requiring 1 million wills to be rewritten. We are prepared to work with the Government and expert groups to draft a targeted amendment along those lines.

Dawn Primarolo: The hon. Lady has acknowledged that any transfer to a spouse is exempt. Will she explain why somebody would set up a trust during their lifetime to transfer assets that are exempt from inheritance tax to their spouse?

Theresa Villiers: The problem in relation to the creation of lifetime trusts is not nearly as serious as the problem in relation to the creation of trusts on death, because the creation of lifetime trusts is much more unusual. The significant problem concerns the limitations on someone's right to set up a trust on their death.

Dawn Primarolo: As the hon. Lady has acknowledged, there will be no change to the rules on the transfer to the spouse on death of all interest in all property. Those rules will not be changed at all by these arrangements, so what is the point that she is trying to make?

Theresa Villiers: The Paymaster General is right that there is no change to the rules on making outright transfers to the spouse. The Government propose to change the rules where trusts are set up for spouses, which is a significant restriction of the spousal exemption. Section 18 of the Inheritance Tax Act 1984 explicitly refers to the ability to set up trusts, and the Paymaster General proposes to limit the ability of people to set up such trusts.

Ann Coffey: Will the hon. Lady explain to the Committee why she feels comfortable in supporting trusts that protect the wealthiest members of our society from paying inheritance tax?

Theresa Villiers: Trusts protect a wide range of some of the most vulnerable people in our community. If Members do not believe me, they should think back to my quotations from the Law Society—from people who are working on the ground managing people's arrangements for their wills. It is probably in the interests of lawyers for the proposals to go through, because everyone will have to go to them to get their wills changed, yet they care so passionately about the ordinary, middle-income, hardworking, prudent people whom they represent that they are campaigning against the changes in order to enable them to continue to be able to set up the trusts they wish.

Philip Dunne: I am sure that my hon. Friend is aware that for the past six or seven years every solicitor practising family law who has been asked to draw up a will has recommended to their clients that in the event that they have children or have been divorced, or both, it is in their interests that their will is written into a trust, irrespective of the value of assets in their estate. Moreover, given that average house prices are approaching the point whereby several years hence the majority of estates are likely to fall within the inheritance tax net, we are talking not about the rich but about householders.

Theresa Villiers: I am grateful to my hon. Friend. For many years, it has been a standard part of more or less every will drafted for a family to include a trust because those arrangements make sense in balancing the different interests of different family members.
	While I am broadly sympathetic to the objectives of the Liberal Democrat amendments, I prefer the approach taken in new clause 1 and amendment (c). I appreciate the importance of safeguarding the interests of civil partners, but new clause 1 and amendment (c) already cover that when read in conjunction with the existing legislation.
	On new clause 2, I agree that postponement of the measures to give time for consultation and reflection would be very welcome. Amendment (a) and new clause 2 refer to life assurance. On Second Reading, the Chief Secretary said that life assurance policies are not affected by the Bill. If that is the Government's aim, I am not convinced that they have yet achieved it. Although reassurance on the point was rushed into the explanatory notes at the last minute, Kevin Martin, president of the Law Society, later disclosed:
	"The Revenue has confirmed to us that the Finance Bill does indeed contain nothing on this. There is no specific exclusion for life policy trusts as has been widely claimed. Millions of wills and life policy trusts may be caught."
	The Revenue's assurances on life policies seem to be based on the view that premium payments are not additions to the trust because they are made pursuant to the terms of the policy contract. That contested view of the legal position is scant comfort for the policyholders who could be hit with the new IHT charges. Skandia Life has said that as many as 4.5 million people could beaffected. In any event, life policies settled on accumulation and maintenance trusts would still be affected. The problem has not been solved, and I hope that the Government will consider taking appropriate measures to tackle it in the Bill.
	I urge the Government to accept new clause 1 and amendment (c) and reverse their decision to impose new inheritance tax charges on trusts for spouses and civil partners. I urge them to scrap all the penal new inheritance tax charges that they are proposing. First, no proper consultation has taken place on these new taxes. The Chancellor left them out of his Budget speech and the Revenue failed to mention them in the entirety of a detailed two-year consultation process that it carried out on the taxation of trusts. Secondly, these taxes are retrospective. They apply to existing wills and trusts, many of which will be expensive, difficult and in some cases impossible to amend. Thirdly, no effective assessment has been made of their impact. Upwards of 1 million wills of ordinary working people may need to be reviewed and rewritten, with all the huge costs that that would entail. Finally, they would amount to a tax on prudent families and impact harshly on thousands of ordinary, hardworking people whose only crime is to provide responsibly for their families and to plan for an uncertain future.
	If these harsh new tax proposals are anything to go by, the future that middle England faces in Brown's Britain is more uncertain and grim than ever.

Chris Bryant: I intend to speak briefly because I want to make only two points.
	First, although the hon. Member for Chipping Barnet (Mrs. Villiers) sounded reasonable, she exaggerated the need for any changes to the Government's proposals. Indeed, the hon. Member for Ludlow (Mr. Dunne), who perhaps owns property that far exceeds the expectations of any of my constituents, gave the game away when he said that half of all properties in Britain will soon—in a matter of a few years—go over the threshold. Not a single property in the Rhondda sells at £300,000. The idea that 50 per cent. of estates in the next few years will reach £325,000 is extraordinary. The hon. Gentleman's mathematics need to be better because between 94 and 96 per cent. of estates do not reach that threshold today and will not do so with the increases in the threshold that the Bill proposes.

Philip Dunne: Clearly, I am not familiar with property values in the Rhondda, but I know those in my constituency of Ludlow, where the average property value exceeds £200,000. I understand that the average property value in the south-east of England exceeds £300,000.

Chris Bryant: The hon. Gentleman can speak for his constituency, but I dare to suggest that if he considers the whole country, his statement that 50 per cent. of estates will be valued at more than £325,000 in the next few years is a gross exaggeration.
	When the hon. Member for Chipping Barnet gave her list of teachers, fire officers and others, she appeared to suggest that all of them—every teacher in the country—will suddenly have to put together a new will and a new trust. She clearly has not met teachers in my constituency, or in the majority of constituencies, who will not get anywhere near the £325,000 figure. Consequently, her comments constitute scaremongering, which is an inappropriate approach to the Bill.
	Secondly, the reason for my opposition to new clause1 and my wholehearted support for the Government's proposals is that there are two alternative directions of travel in which we can move on inheritance tax. One is to undermine inheritance tax—not necessarily by pledging to abolish it, but by suggesting that one disagrees with it and would like to abolish it even if one does not have the gumption to say so. On the other hand—I may be about to step into old-fashioned shoes—some of us believe in inheritance tax for the simple reason that the greatest source of inequality and inequity in British society is inherited wealth. If we do nothing, especially when the wealthiest in our society are doing extremely well, to undermine the progress towards greater inequality, we undermine the fabric of the society in which I want and choose to live.
	The hon. Lady was wrong to table new clause 1. We need to do what the Government propose and try to ensure that there are not many different ways of exempting oneself from inheritance tax and that there are not ways that are especially available to the wealthiest in society, who can afford expensive consultants on tax and other matters.

John Thurso: Will the hon. Gentleman give way?

Chris Bryant: Of course I give way to the hon. Gentleman, whose honour itself is inherited.

John Thurso: The hon. Gentleman is too kind. I quite understand the logic of his argument, but will he tell me whether he would like the Government to remove all exemptions to inheritance tax and to apply it to everyone across the board with no exceptions?

Chris Bryant: No. This is another area in which the hon. Member for Chipping Barnet exaggerated earlier. She seemed to suggest that spouses and civil partners were suddenly going to face a new problem in relation to inheritance tax. I do not believe that to be true; it is an exaggeration. However, the Paymaster General might want to clarify the one genuine point that the hon. Lady raised when she described the situation of someone who remarries and wants to ensure that some of their property goes to the children of their first marriage, and that the second wife is happy with that arrangement, as is often the case. Perhaps the Paymaster General could clarify precisely how that will still be possible.
	To return to the question that the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) asked me, of course there should be exemptions, and the most important are those for spouses and civil partners.

John Redwood: Is the hon. Gentleman saying that prospects under Labour are so poor in his part of the world that no one there will ever reach the inheritance tax threshold?

Chris Bryant: No. The right hon. Gentleman misunderstands the economy of south Wales, just as he did when he was Secretary of State for Wales. I must point out to him that there are more people in paid employment with good prospects today because of the national minimum wage, which he opposed. However, if I continue in that vein, Sir Alan, you will tell me that I am straying somewhat from new clause 1, and I did promise to draw my remarks to a close fairly swiftly.
	Inheritance tax is about paying a fair share, and the proposal by the hon. Member for Chipping Barnet tries to undermine the concept of a fair share. We are right to oppose new clause 1.

Julia Goldsworthy: As we have heard, there is a divergence of opinion on what the Bill means. The Red Book suggests that only £15 million would be raised by the changes to inheritance tax and trusts, and that the new regulations would affect only a small number of people. However, the evidence given to the Treasury Committee by John Whiting suggested that the changes would affect a lot of everyday arrangements and a huge number of individuals. The Times suggested that they would affect 100,000 families, and the Society of Trust and Estate Practitioners went further, estimating that at least 1 million wills would be affected. The society also estimated that the average cost of rewriting a will was £250. If we multiply that by 1 million, we see that the cost to individuals of rewriting their wills would stand at £250 million, while the benefit to the Treasury of the changes would be £15 million. It is easy to see the disparity between the number of people likely to be affected and the amount of money raised.
	Skandia estimated that up to 4.5 million life insurance policies could be affected by the changes, because so many families have life insurance policies written into trusts. Given that the nil rate band does not stay in line with inflation, more and more families will be drawn into the lower end of the system. Therefore, it is not only those who presently fall into the inheritance tax band who will be going back to their solicitors to change their life insurance policies. This will also affect people who are unsure at what point in the future their estate might fall into the inheritance tax band.

Ann Coffey: Will the hon. Lady tell us at what level her party proposes to set inheritance tax?

Julia Goldsworthy: I am very pleased to tell the hon. Lady that we will shortly be announcing a fundamental review of the taxation system, in which all will be revealed. That review will look into making the taxation system fairer and more progressive.

Dawn Primarolo: When the hon. Lady announces the outcome of that review, will it contain the principle that the rules apply to everyone and that no one is allowed to get round them? If so, how would her party enforce them?

Julia Goldsworthy: As I said, the system will be fairer and simpler. The hon. Members for Rhondda (Chris Bryant) and for Chipping Barnet (Mrs. Villiers) do, in fact, agree on something. Fundamentally, the issue raised by new clause 1 is that of spouse exemption and whether that is changed by the Bill. There is a real lack of clarity, and all the new clauses and the amendments to them are intended to make the situation clearer. Even if the Paymaster General argues that it is already clear, members of the public and professionals have a different interpretation of what the regulations mean.
	I can see the good intentions of new clause 1, but its argument is slightly circular—that anything exempt under the new Act will continue to be exempt—and does not make sense. The amendment tabled by the hon. Member for South-West Hertfordshire (Mr. Gauke) improves his Front-Bench team's phrasing and overcomes that tautology. New clause 2, tabled by Liberal Democrat Members, extends that and calls for a further period of time to have elapsed so that the implications of the legislation can be made absolutely clear, not least for individuals who have died since the Budget either intestate or with their will written into trust. At the moment, the cases of those individuals are subject to considerable uncertainty. I am glad that the hon. Member for Rhondda approves of amendment (b), which, for the avoidance of any doubt whatever, makes it clear that civil partners will also fall under the spousal exemption.
	New clause 2 seeks a delay in the implementation of the Act until its impact is fully assessed and understood. Debate in the House and outside shows continuing disagreement about the extent of that impact. Making it explicit that a full consultation will take place would be appreciated, as that did not happen before the proposals in the Bill were put forward. I understand that a partial regulatory impact assessment has been undertaken, but the new clause would ensure that there would be a full regulatory impact. Is the Paymaster General prepared to publish that partial regulatory impact assessment before the relevant clauses are considered in Committee? Will she also provide longer-term projections of the revenue that she estimates the measures will gather? The Red Book gives only a limited time scale and shows that, according to the Government's estimates, the amount of money will be small. Clearly, the professionals think that the opposite might be the case. All the measures in new clause 2 would help to inform the public and make clear what the impact and the revenue implications for the Treasury will be.
	As I said, new clause 3 echoes the theme of the amendment tabled by the hon. Member for South-West Hertfordshire and extends it. As well as making it absolutely clear that there will be no retrospection for applied transfers of value written into trust made prior to 22 March, it makes provision for people who have died intestate with dependants since 22 March. Currently, their estates are in limbo, and it is not clear how the new regime will apply to them. Fundamentally, it preserves the existing rules of exemption for two years until the new system and its implications are fully established. It also sorts out what happens in relation to people who die in the intervening period.
	Surely the fundamental anomaly is that, under the existing regulations, someone can still make a lifetime gift free of inheritance tax if they do not die within seven years. That has not been redressed by the Bill. The changes proposed by the Bill impact on people who are not cash-rich, cannot make cash gifts in kind and thereby avoid inheritance tax, and have houses that have increased greatly in value in the many years that they have lived in them. In my constituency, for example, average house prices are increasing so rapidly, and the gap between house prices and incomes is so great, that more and more households are falling into inheritance tax.
	Can the Paymaster General be explicit about what mischief has been done that the Government are trying to overcome, and about their assessment of the impact of any avoidance under the existing trust regime? Will the Government respond to the Treasury Committee's request that they should provide detailed information about how they arrived at their estimate that the new rules on the tax treatment of certain trusts will affect only a "minority of a minority" of the 100,000 discretionary trusts? Will they do that before clause 57 and schedule 20 are considered in Committee?
	If, as the Government claim, existing spouse exemptions and other reliefs from inheritance tax will continue to apply when a trust is set up in the case of an individual with dependants dying intestate, can they explain why the professionals beg to differ? Can they specify where that is explicit in the Bill, and can they clearly demonstrate why the new clauses and the amendments to new clause 1 are not necessary? Along with the professionals and many members of the public, I would welcome more clarity, certainty and evidence-based policy-making in this regard.

John Redwood: My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) has identified an extremely important problem, which the Government would be well advised to take seriously.
	I do not expect to be a beneficiary of any trust of this kind. I have created no such family trusts in my own family. I no longer have a spouse, so I have no direct interest in that context, either. I sought and gained a clean-break divorce settlement, so the divorce did not trigger the establishment of any trust. I therefore believe that I have approached the matter with independent judgment.
	Having exercised my independent judgment, I conclude that there are many people of modest means who, quite legitimately, have taken advice and set up trusts to look after their family interests. In many instances, that was done not on the advice of people who said that it was a tax-efficient way of doing things, but on the advice of those who said that it was the best way of protecting family interests against competing claims within the family—the best way of meeting the legitimate needs and requirements of the children, as against the legitimate needs and requirements of a new spouse or another relative. It might not always be a case of family breakdown; other relatives could be involved, such as grandparents, grandchildren, aunts or uncles. There are numerous combinations for which trusts make a great deal of sense.
	One answer that we need to tease out of the Government involves the extent to which the legislation appears to be retrospective. We would all feel easier about it if the Government recognised that over the past nine years they have presided over a tax and legal regime that made it perfectly rational and sensible for families to organise their affairs through trusts. Now they seem to be blowing the whistle. I consider that the Government are legislating retrospectively, in practice if not technically, when they say that they do not like the arrangements that people have made to deal with future events and force them to change those arrangements—arrangements that were made on the basis of good advice and were legal and sensible under the law of the time, which happens to have been approved and supported by this Government over the past nine years.

Rob Marris: I understand what the right hon. Gentleman is saying. Did he support the Inheritance Tax Act 1984? As I recall, that Act changed the previous regime of capital transfer tax to the current inheritance tax regime and was open to the very criticisms that he is now making in regard to retrospectivity and people who plan for the future.

John Redwood: I did not support it because I was not a Member of Parliament at the time. [Interruption.] I am telling the hon. Gentleman the truth. I did not support the legislation, and I dare say that if it contained an element of retrospection I would—as a well-known independent voice—have pointed it out.

Ivan Lewis: The right hon. Gentleman was a member of the Cabinet.

John Redwood: The Minister may recall that I resigned from the Cabinet over matters of principle because I had reached a point at which I did not agree with that Government. The Minister has walked into a heffalump trap of his own making: I am not the person to tease over sticking to my principles.

Ivan Lewis: The right hon. Gentleman wanted to be leader.

John Redwood: It was a long time ago, but if the Minister reads my resignation statement he will see that my resignation was not about that; it was about issues of disagreement between myself and the Government. I hope that he will withdraw his uncharitable remark about my wishes on that occasion.
	I hope that the Paymaster General will deal with the issue of retrospection. In this and earlier debates, a number of Members have drawn attention to the high cost, for families of modest means, of going over ground that they thought had been resolved at the time of the original trust settlement—when the grandparents made their offer, when the divorce was agreed, or when something else triggered the arrangement.
	The Labour party seems to want to stretch the debate to discover what are the general intentions in relation to inheritance tax. I know that you are very careful to maintain order, Sir Alan, but I will say this: of course I think that a much higher threshold for inheritance tax would be helpful generally and would deal with some of the problems that we seem to be encountering across the Floor today.

Helen Goodman: If the right hon. Gentleman thinks that, can he also tell us whether agrees or disagrees with the right hon. Member for West Dorset (Mr. Letwin), who says that equality is a problem in this regard? How   does the right hon. Member for Wokingham (Mr. Redwood) reconcile those two ideas?

John Redwood: I am a great believer in equality of opportunity, and the way to have a much richer and more prosperous society is to give greater freedom and to set lower taxes, so that more people can participate in such prosperity. That is exactly the point that I was trying to tease out of the hon. Member for Rhondda (Chris Bryant). I hope that he is proud to represent his constituency and that he expects some of his constituents to use the opportunities provided under even a Labour Government to build businesses and buy properties, for example, in order to become more prosperous, thereby coming into the tax regime that this Government have so carefully designed to entrap them.

Chris Bryant: The trouble is that when inherited wealth is allowed to ride untrammelled across society, it is much more difficult to achieve equality of opportunity.

John Redwood: I do not think that that is true; indeed, there are many examples to the contrary. I have not inherited any wealth up to this point and I do not have great prospects in that regard, but I do not begrudge those who come from much richer families than mine doing so. If that money trickles down through the generations, it very often does far more good than if it trickles into the sticky hands of the Chancellor of the Exchequer, which seems the only alternative on offer in today's debate.
	It would be much better if the inheritance tax system recognised that a person is not very rich just because they have a flat or house that might now be worth a lot of money. There are a number of elderly residents in Kensington and Chelsea living in two or three-bedroom flats that are perhaps worth the best part of £1 million who might be on quite low incomes. Is the Labour party saying that those people must move to realise their asset and to show that they have some wealth? I want to live in a country where, if such people want to carry on living in their two-bedroom flats, they can do so. They should not be treated as rich because, even though they have low incomes and have no other assets to pay all the taxes that Labour now wants to impose on them, they happen to live in a part of the country that has rather high flat and house prices.
	I hope that the Paymaster General will deal with the inequality of house prices nationwide, which is not always, as Labour seems to imply, good news for those in high house price areas. Such people could be worse off than those in low house price areas because they have to pay a disproportionately higher proportion of their assets and income in order to secure and maintain their property. In other words, the principle can work in the opposite direction.
	The final issue is what should happen in future. If the Paymaster General can persuade us that there is no effective element of retrospection and that there is an injustice to tackle, we have then to test whether she has found a route to tackling the injustice and inequality that she sees, and whether she would do so in a way that would make Britain a more prosperous and equal society. I suspect that she will achieve the opposite of what she wishes to achieve.
	I do not want to live in a country where only the super-rich can prosper by—thanks to their access to the really good lawyers—finding a way around the more complicated regulations that the Government have come up with. I do not want to live in a society that sends out the message that it is better to go offshore or live abroad. I know that offshore trusts have been popular with some Labour donors and Ministers, but they are not a particularly good thing to encourage. It is much better to have an honest, low-tax system that is the same for everybody, and which encourages more enterprise and success.
	I hope that the Paymaster General will think twice, three times or however long it takes and understand that her proposals contain several objectionable parts. First, retrospection will disrupt family arrangements. Secondly, the suspicion that all trusts are evil tax dodges is clearly not true. Thirdly, on the Paymaster General's idea that such complexity will squeeze the rich and help the poor, I suspect that the rich will escape because they will have access to good lawyers and accountants and can always go offshore. In short, I urge the Government to drop this proposal.

David Gauke: I had hoped that we might find a few areas of consensus on this issue. There is clearly a range of views on inheritance tax, but I disagree with the hon. Member for Rhondda (Chris Bryant), who suggested that the new clause is an attack on the principle of IHT. Not all my colleagues will agree, but I think that there is a role for inheritance tax in our system. It may not apply to many people in the Rhondda, but it does to a lot of people in South-West Hertfordshire. The rate may also be open to question, but I do not disagree with the basic idea of inheritance tax.
	In addition, the saloon bar wisdom is that wealthy people get around paying inheritance tax by using trusts. I see nothing wrong with trying to address genuine tax evasion; wealthy people should not be able to evade the tax when ordinary people in South-West Hertfordshire, Falmouth and Camborne or anywhere else are stuck with the liability.
	As my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) said, the Government have expressed the view that, essentially, trusts should be tax-neutral, and I support that. As she also noted, the Revenue's policy in reforming the income and capital tax treatment of trusts has been to create
	"a tax system for trusts that does not provide artificial incentives to set up a trust but, equally, avoids artificial obstacles to using trusts where they would bring significant non-tax benefits."
	I see nothing wrong with that. Since 1894, when estate duty was introduced, certain types of trust have been equated with outright ownership, and taxed accordingly.
	Perhaps the Paymaster General will correct me if I am wrong, but I believe that there is a consensus about the value of the spousal exemption. As my hon. Friend the Member for Chipping Barnet said, it was introduced in its current form in 1975, but in some form or other it dates back to 1896. The need for the exemption is easy to understand; in most cases, an inheritance leads to a windfall, but a death usually results in a fall in income and an element of hardship for the surviving spouse.
	In addition, there is usually a shared family home. Given the emotional concerns that follow a loss, it would be unduly harsh for a spouse to have to sell a house to pay an inheritance tax bill. Clearly, the particular circumstances of spouses need to be considered, and the Civil Partnership Act 2004 has extended the number of people in that category. We need to ask a couple of questions about the Bill. Does it continue to apply to tax trusts in the same way as to outright gifts, and does the spousal exemption continue to apply?
	The Government might argue that the spousal exemption will apply in respect of immediate post-death interests, but the professional advice that I have seen maintains that that will not work because, in practice, it is almost impossible to meet the conditions. Moreover, it is held to be
	"nigh on impossible for one spouse to leave their estate in trust for the other and obtain the spouse exemption."
	As my hon. Friend the Member for Chipping Barnet pointed out, there are specific conditions in the draft proposals in respect of inheritance tax that make it very difficult for most trusts to work and still obtain the spousal exemption under the immediate post-death interest definition. Condition 3 requires that the surviving spouse interest can be ended only during her lifetime with her consent. Consequently, a will that states that the surviving spouse has a right to live in a house until remarriage, when the assets pass to the children—the experts say that that is fairly common—will breach that condition and will not be able to benefit from the spousal exemption.
	Condition 4 states that, on termination of a surviving spouse's interest, a person will become entitled to the capital outright. However, if the trustees have the right to defer a child's absolute entitlement—again, that is fairly common—then that condition is breached and the spousal exemption is not available.
	The immediate post-death interest conditions prohibit flexibility, the need for which was questioned earlier. Again, my hon. Friend the Member for Chipping Barnet dealt with that very well. Complex family arrangements are best dealt with through flexibility. We have heard about the case of a widowed second wife, where there are children from the first marriage, which even the hon. Member for Rhondda acknowledged was an issue. There also cases such as that of a young widow who is expected to remarry and have more children; a widow and children with special needs; a childless marriage where both spouses want their assets to go to their respective nephews and nieces; where a property is complex and may impose management demands best performed by trustees rather than the widow; or where a testator has less than full confidence about the distribution of the property.
	Those are all legitimate, reasonable circumstances that a trust is able to address. The trust is a great intellectual achievement of English law and it seems a great pity to dismiss it as the Government seem to be doing. They seem to have a prejudice against trusts as a method of addressing those issues, which relate not to tax evasion or tax minimisation but to personal circumstances.

Dawn Primarolo: If I were to tell the hon. Gentleman that the Government have made provision for precisely the situation he describes and that a straightforward trust set up for one beneficiary—an ex-spouse or civil partner—which goes to them before passing absolutely to another person on the death of the beneficiary, retains their existing inheritance tax treatment, including the spousal exemption, would all his problems be settled?

David Gauke: The right hon. Lady should not take my word; the advice provided by professional after professional is that what the Government are proposing simply will not work. In nearly every case, there is a degree of flexibility, for which the Government are not providing.

Dawn Primarolo: So the hon. Gentleman is saying that he does not believe me when I say that there is flexibility for a spouse or an ex-partner to receive an interest that is eventually passed wholly to a subsequent beneficiary. I am telling him that clearly, but he would rather believe people outside the Chamber than me and civil servants.

David Gauke: I am inclined to believe specialists who work extensively in the field—[Interruption.] If the civil servants had consulted a little more widely—although that is another issue—we might not have found ourselves in these difficulties.
	I think that the Government's great concern is that a widow could receive a life interest, terminate the trust and make a lifetime gift and, if she survived for seven years, benefit from provisions relating to potentially exempt transfers. I should be interested to hear from the Paymaster General about the particular difficulties that she considers exist and where the current spousal exemption is being abused. However, as my hon. Friend the Member for Chipping Barnet rightly pointed out, the Government's proposals are an ineffective way of addressing their concern. Better ways could be found by looking at the potentially exempt transfer route, which would address the matter much better than using such an over-sized sledge hammer to hit that particular nut.
	I wait with anticipation to hear whether the Paymaster General will argue that one can always vary a trust on death, thereby resolving many of the problems or injustices. However, such a solution requires both that the trust is one that can be varied and a degree of flexibility, which is clearly not something that the Government want to encourage in trusts, although it would be useful in those circumstances. Variation could also be achieved with the consent of the beneficiaries, but that would not be possible if they were minors. In that case, it would be necessary to go to the court, with all the expense that would incur. If the Government chose to use that argument, it would not be persuasive.
	The Government say that the provision will affect only a few people and several Labour Members have suggested that it would apply only to a tiny minority of the wealthy. However, over the past few days, I have been bombarded with documents produced by professionals pointing out that they regularly advise the inclusion of a trust in fairly normal wills, and that it is a common, run-of-the-mill device used to protect a family and to address particular family circumstances. As a matter of course, trusts are involved in wills, not for taxation reasons, but because they provide flexibility. The Government appear not to know that, which suggests a lack of consultation, which has marked the process throughout.
	Why have the Government done this? Perhaps saloon bar wisdom and the lack of consultation means that they were not aware of the problems that they have caused, but I wonder whether another element is involved, so I want to offer one or two friendly words of warning to the Labour party. The whole approach smacks of a good old go at the toffs, and we have heard one or two comments along the lines this afternoon that just the wealthy and rich are affected, that the policy does not really matter and that it will play quite well perhaps back in the Rhondda.
	The Labour party has been extremely successful in the past three elections, and one of the reasons is that the Prime Minister has managed to distance himself from the perception that the Labour party is a bunch of class warriors. Not for the first time, the Chancellor of the Exchequer has waded in and tried to play the class card, just as he did with Laura Spence and Oxford university, when he rushed in and got the facts wrong, did not understand the matter and rather embarrassed himself. I fear that the Government and the Chancellor have done exactly the same thing with this policy. They think that they have made an attack on the very wealthy and the privileged few, when the reality is that large numbers of ordinary people, not the wealthy, will be affected by this policy. The Government have made a misjudgment, and I suggest that they back off; they could start today by accepting the new clause.

Quentin Davies: This has been a very interesting debate so far, and I want to make three points and to ask a question. Sir Alan, you have allowed the debate to range over the philosophy of inheritance tax—very judiciously, if I may say so—because it is important for the public that we have the opportunity to discuss such matters in the Chamber and this is the obvious opportunity to do so.
	Perhaps I can start by saying that my personal view of inheritance tax—a view for which I argued, with no success whatsoever, when I was shadow Paymaster General in the shadow Administration in the 1997 Parliament—is that we should reduce the rate of inheritance tax to 10 per cent. That would put out of business the whole industry of providing ways to avoid inheritance tax by structuring and persuading people to give away their property, they hope, more than seven years before they die and would stop people leaving the country to shelter their assets from inheritance tax. Instead, we would make this country something of a haven for people with assets to shelter from inheritance tax or estate duty, or whatever may exist in their own countries. There would be a major Laffer curve effect, and we would reduce the marginal rate from 40 to 10 per cent. We certainly would not reduce the revenue by anything like that amount; the revenue might even increase. That is my own view of how to deal with the problem, but I have so far failed to persuade my hon. Friends, let alone anyone else, that that is the way forward. Perhaps, one day, we shall make progress along those lines.

Helen Goodman: Can the hon. Gentleman explain how the Laffer curve could possibly affect the revenue from inheritance tax? One can understand how it could affect work incentives and the take from income tax, but how could it possibly affect the revenue from inheritance tax?

Quentin Davies: I do not think that the hon. Lady was listening because I tried to explain how that would happen. First, to avoid inheritance tax quite honourably, sensibly and rationally, a considerable number of people try to give their money away to their children more than seven years before they expect that they might be in danger of dying. Clearly, that is a loss to the Revenue. Clearly, there is an element of gambling about it, but I do not think that people would do that if the rate were only 10 per cent., because of the considerable disadvantages and considerable risks; not least that their children may marry the wrong person, so half the money would go to someone else. There are all sorts of risk of that kind, so people would not go in for those schemes as much as they do currently.
	Secondly, people are sometimes influenced in their choice of country of residence by the inheritance tax regime. If we have a 40 per cent. regime in this country, people will not come here with large assets and those with substantial assets will tend to move away. I am explaining this at some length because the hon. Lady obviously did not follow the argument when I presented it in slightly more summarised form a few minutes ago, but it is a serious argument and I suggest that she think about it.
	The Laffer curve effect means that one reduces the rate of a tax and, as a result, induces behavioural changes. As a result of that, the revenue from the tax rises. That is what I was arguing—I think reasonably—we could achieve through reducing the rate of inheritance tax. I make that point today because I have tried to make it before in private conversation and got nowhere. Perhaps someone who is listening will pick the idea up and it will eventually get somewhere.
	My second point is for the hon. Member for Rhondda (Chris Bryant), who has unfortunately just left the Chamber. He used an extraordinarily bad argument and I am sorry that he is not present. I think that, if he thinks about it, he will confess that it was a bad argument. He said that very few people in his constituency—and, of course, a considerable minority in the country as a whole—have assets that approach the inheritance tax threshold or ever think of setting up a trust in the course of their lives. That is irrespective of the connection between the two things; there may be good arguments, which have nothing whatever to do with inheritance tax, for setting up trusts.
	It is perfectly true that the great majority of our fellow citizens do not find themselves in danger of paying IHT or thinking about trusts. However, the hon. Gentleman then suggested that it did not matter if we were making a bad law, because it would affect only a minority of people. That is a bad principle for any legislature to operate on and I would be very sorry indeed if anybody in the British House of Commons thought, on reflection, that that was a sensible way for us to work in this legislature.
	Any injustice or perversity is to be avoided and to be regretted if it happens. We must hope, in all our deliberations and decisions, to improve the rationality and fairness of the corpus of law in this country and not to detract from them. If there are problems with the Government's Bill and if it would increase unfairness and perversity, we should reject the proposals, and we should do that irrespective of the number of people who might be sufferers from that irrationality or unfairness. That is a general point of principle.
	My third point is that the Government owe us some explanation of their agenda. We have not heard one so far in the debate. They clearly have an agenda—reflected in the Bill—to have a go at trusts. There was an interesting discussion between the Paymaster General and my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) about the extent to which the proposals in the Bill would remove the exemption from inheritance tax, which the right hon. Lady tells us the Government intend to maintain, in the case of inter-spouse transfers on death—that is to say, inheritance by one spouse from another—in the event that that transfer or inheritance takes places by means of a trust. I cannot see any rational reason at all for saying, "Well, we think that it is a good idea to have an exemption from inheritance tax for spouses, but not if the spouses, for whatever reason, have arranged their affairs so that transfer takes place on death by means of a trust or so that the assets pass into a trust on death." We need to know why the Government want to make such a change and if it is a change that they intend to make, as opposed to an effect that they did not anticipate when they drafted the Bill.
	Irrespective of that point, which is a matter for debate between my hon. Friend the Member for Chipping Barnet and the Paymaster General, there are many other areas where the Bill indisputably, and without any apparent reason, attacks trusts in one way or another, or makes the result of people setting up a trust a damaging and perverse one, which it otherwise would not be. For example, the Bill would ensure that the beneficiaries of accumulation and maintenance trusts would have to come into full title of the assets, and could dispose of them without any restriction, when they were 18 years old. It is amazing to me that anybody in this Chamber, irrespective of their political party, thinks that it is a frightfully good idea to give a large amount of capital, in relation to that family's total assets, to a young person of 18 to dispose of quite freely. Is that sensible? The right hon. Lady may want to give her son such an amount at the age of 18, but I certainly would not want to do that to my children because it would be extremely dangerous. Why should the Government try to change the law so as to force that to happen?
	Equally, the Government are changing the law to ensure that the only beneficiaries of accumulation and maintenance trusts can be either those who are benefiting from a criminal injuries order, or the beneficiaries of trusts set out by parents. However, let us consider trusts set up by grandparents, people who wish to set up a trust for the benefit of their own children and the children of a dead sister or brother who have been left in difficulty, or, indeed, people with no children who wish to leave money in a trust for the benefit of the children of their dead brother or sister. Why should we penalise such trusts as against trusts set up by parents? What is the Government's agenda?
	I am mystified by why the Government have suddenly got it into their head to have a run at trusts. Was it, as has been suggested, a purely emotional and symbolic thing? Did the Paymaster General suddenly think that trusts are nasty because they are associated with richer people? I am sure that that is not the explanation because I know her too well to think that she would suddenly have such a rush of blood to the head and thus decide to draw up such legislation.
	Was a rational calculation made of the amount of money that could be squeezed out of the public by changing the rules on trusts? The hon. Member for Falmouth and Camborne (Julia Goldsworthy), who speaks for the Liberal party—she has also left the Chamber—disposed of that one. She said that on the Government's figures, the provisions will result in a net increase in revenue of £15 million. She gave us an estimate of the cost of rewriting trusts and of taxpayers rearranging their affairs that ran to hundreds of millions.
	However, even if the hon. Lady's substantial estimate was a little excessive, on the figures that she gave to the Committee, one can easily envisage that a modest estimate of the costs would be tens of millions. On the test of proportionality to which, I think, the Paymaster General and her Government are committed, the provisions thus fail because the incremental revenue bears no relation to the cost to taxpayers, which is basically a cost to the economy. Although the change might be a good thing for the accountancy and legal professions, it will mean that people will incur large costs that are gratuitously imposed by a piece of legislation with a motive that none of us really understands.
	Before we go any further, it would be extremely helpful if the Paymaster General gave the Committee an explanation. Perhaps I have, naively, missed an obvious point, but, if so, I am reassured that no hon. Member on either side of the Chamber appears to have grasped it. What was the objective behind targeting trusts? Why have trusts been scheduled for punishment in such a way? What is the rationale behind the approach? We must have rational government in a sophisticated democracy. If the Government bring forward new measures and want to change the law, the burden must be on them to demonstrate that the change is beneficial and sensible. They must show that they have thought the change through from the point of view of the country's economic interests, fairness and justice to individuals and the proportionality of cost, because they are the classic principles on which good law, including good tax law, must always be based.

Brooks Newmark: I am getting the sense that I am in a minority in the Committee as I do not have a legal string to my bow. However, my lack of legal training gives me a distinct advantage when it comes to new clause 1, and amendment (c) to it, because I can, at the very least, appreciate the value of clarity. The new clause is a simple appeal for certainty in a Bill that contains less of that quality than might be desired. The number of people who may be affected by the proposed changes to the taxation of trusts has given all hon. Members cause for concern.
	Perhaps my closest brush with the law on wills and trusts comes from "Bleak House", which provides a useful parallel to the Government's proposals. The catalogue of potential beneficiaries at the heart of Jarndyce and Jarndyce, where inheritance is squandered, indolence is encouraged and legal proceedings are interminable, bears close comparison to the lists of those who stand to suffer, if the proposals that we are considering are carried into law—namely widows, minors and the vulnerable.
	Indeed, Finance Bills as a whole have more than a passing similarity to Jarndyce as Finance Bills
	"in course of time become so complicated that no man alive knows what it means"
	and nobody
	"can talk about it for five minutes without coming to a total disagreement as to all the premises."
	The Dickensian fog may have lifted from the Chancery courts but it still sits heavily on schedule 20 and particularly on proposed new section 49A of the Inheritance Tax Act 1984. The Government should be committed to the principle of proportionate rather than punitive taxation, and that commitment is not clear in these provisions.
	New clause 1 has a modest aim: to ensure, setting aside all other confusions, that no inheritance tax will be payable on transfers of value between spouses, and not as the hon. Member for Rhondda (Chris Bryant) would have us believe, to avoid inheritance tax completely. The spousal exemption exists to prevent punitive double taxation of an estate. That is a sound proposition, founded on an inoffensive principle. It has, as my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) said, been the subject of consensus since capital transfer tax was introduced by the Labour Government in 1975. The Chief Secretary echoed the need for just such a principle when he spoke on Second Reading about the need to ensure that people pay their fair share of tax. I know from my brief experience in consideration of the National Insurance Contributions Bill that that particular Labour mantra is very much in vogue. The Paymaster General used it four times in one speech. I am glad that she has taught it to colleagues on the Treasury Bench, but the mantra is as nebulous now as it was then.
	The use of trusts as a vehicle for asset protection has made them the target of another Dawn raid because they are perceived as being unfair. The fact that trusts exist to protect assets from more than the taxman does not seem to concern the Government overmuch. It is true that the caveat for those suffering from a disability has been preserved, but only for a very limited class of beneficiaries in which no one can be thought of as vulnerable if they are not first found incapable under the Mental Health Act 1983 or are claiming disability benefits. That is a sop to fairness, but in reality it is deeply regressive and inflexible. It takes care of the mad, but not the bad or the sad. It also fails to draw the sting of schedule 20 because fairness has always been at the heart of trusts.
	Most often the very reason why trusts exist is to allow for flexible and equitable distribution of assets in the face of changing and unforeseen circumstances. The Government have been keen to acknowledge that trusts have a positive role to play in assisting people to manage their tax affairs, and in particular in holding assets on behalf of vulnerable people. However, vulnerability is not linked, and never has been, exclusively to disability.
	Members of the legal profession made a number of representations to me on the many beneficial effects that trusts may have in restraining a rake's progress or in keeping a fool and his gold well acquainted. Many sound arguments that relate to the age at which the interests of younger beneficiaries should vest regrettably go beyond the scope of new clause 1. No doubt, the issue will be revisited in Standing Committee. However, I regard beneficiaries under a trust as vulnerable if their interests would not be adequately protected without that trust.
	That point becomes germane in the context of new clause 1 if we consider the number of trusts created at present to protect the interests of children in the event that a parent should remarry. That is a common situation, and it is merely one item on the exhaustive list given by my hon. Friend the Member for Chipping Barnet. As a result of the proposal, many older testators may begin to favour outright gifts to their surviving spouse, rather than risk settling assets on trust, which may fall foul of the spousal exemption and be liable to inheritance tax. Such outright gifts do not allow any measure of flexibility. Furthermore, they do not allow testators to be sure that their children will be provided for if the surviving spouse should decide to favour the other's interests over theirs. Children in that position are undoubtedly vulnerable, so we must ensure that they are protected as before.
	Sadly, that state of affairs is not unforeseeable, and it is a nightmare scenario for anyone trying to provide responsibly for a family. Modern matrimonial arrangements are complex, but there should be no doubt about whether people with multiple families will continue to benefit from the existing spousal exemption. We would not want to be responsible for encouraging an epidemic of wicked stepmothers if the provisions encourage the use of outright gifts to the detriment of the prudent protection of children. New clause 1 clarifies interference with the taxation of trusts, which is invidious in principle and may prove unworkable in practice.
	Trusts and their taxation are not a subject on which I profess expertise, yet I can readily understand the implication for the average prudent family of any interference with the spousal exemption. The objective of new clause 1 is to offer simple peace of mind to the many people who may be affected by the proposals. Even the legal profession is uncertain about the runaway scope of the changes, and I am more worried about the uncertainty than I am about mere outrage, although we have seen evidence of both. The Law Society, the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners and many other professional bodies have pleaded for clarity. New clause 1 would achieve it by including in the Bill an assurance that surviving spouses will not be subject to inheritance tax if their affairs are structured to maintain flexibility and protection for others.

Stewart Hosie: I am not a tax accountant or a lawyer, and, given the nature of our debate, I am grateful for that. I am grateful, too, for the briefing that right hon. and hon. Members have received from the Law Society of Scotland. I shall ask the Paymaster General a number of questions at the end of my speech, as Members on both sides of the House are deeply concerned about the legislation's impact, intentional or unintentional. The Chartered Institute of Taxation said that
	"all the professional bodies hope that HMRC and the government will listen to our representations and modify the proposals to ensure that spouses and civil partners remain exempt and that young and vulnerable people can continue to be protected through trusts without suffering a financial penalty."
	Similarly, the Law Society president said:
	"This measure will affect millions of ordinary people and not just the very wealthy that the Government claims to be targeting."
	The briefing helpfully suggests that it is anomalous that wills involving trusts for the spouse should attract more tax than wills without trusts:
	"If no trust is made, no inheritance tax is due until the death of both spouses in a marriage (or partners in a civil partnership). But under the new proposals, if a trust is made, inheritance tax could now be due . . . after the death of the first spouse and again after the death of the second."

Quentin Davies: I am particularly grateful to the hon. Gentleman for giving way, as I am interrupting his speech to say that he just mentioned a briefing from the Chartered Institute of Taxation, although I have not seen it. It reminded me that I should have mentioned in my earlier intervention—I forgot, Sir Alan—that I am an adviser to the Chartered Institute of Taxation.

Stewart Hosie: I thank the hon. Gentleman, and I am sure that the Committee Chairman will be delighted to hear that.
	It is interesting to note that the briefing is signed not just by the Chartered Institute of Taxation and the Law Society, but by a large number of other bodies. It discusses the key topic of inheritance tax on life assurance policy pay-outs, stating:
	"It is usual for a life assurance policy pay-out to be written in trust for the spouse or children".
	It identifies two problems that may result from the new legislation, and continues:
	"The proceeds may now be liable to inheritance tax in two circumstances. First, if the life assured dies before the ten-year anniversary when the trust was originally taken out and the trust is not ended at the ten-year anniversary . . . Second, if the person taking out the life cover is in ill health at the ten-year anniversary of the trust."
	We heard earlier today that the life insurance company, Skandia, believes that some 4.5 million policies may be affected as a result of the changes.
	I have a few questions for the Paymaster General. How many people will be affected by the new regime? Estimates seem to range from almost none to many millions. Will spouses be affected by double taxation—a key point, on which absolute clarity would be particularly helpful? How many policies currently written into trusts may be affected, and have the Government considered that problem? How many wills will need to be changed? Finally, what consultation was carried out with the industry—the life insurance industry, the pensions industry and the legal profession? All relevant bodies seem to be saying that it was very little, and perhaps that explains why the Government are in such a pickle over this problem.

Philip Dunne: I remind the Committee of my entry in the Register of Members' Interests. I am a settlor of a trust, which I set up for my children with assets that I generated from my own endeavours—in other words, they were not inherited by me prior to my becoming a Member of the House.
	I am also the beneficiary of a trust and should like to explain why it was set up. My father set it up in order to gift some assets to me, as a result of my asking a question to his adviser about whether I would be able to borrow against those assets for my other activities. So concerned was my father when he heard that he could be making me a gift that I might then seek to leverage on receipt that he put the assets into a trust, precisely in order to protect them. He was not prepared to allow me, even though I was over 25, to use those assets for a purpose other than he had intended.

Dawn Primarolo: Given that the hon. Gentleman does not have control, is the trust subject to inheritance tax?

Philip Dunne: I am pleased to say that my father survived more than seven years after the gift was made, so it benefits from the potentially exempt transfer regime.

Dawn Primarolo: I am grateful to the hon. Gentleman, who makes my point that changes to trusts are covered either by the spousal exemption or the seven years provision.

Philip Dunne: I should like now to deal with the deficiencies of the regime, which I am afraid that the Paymaster missed out of her speech. The first has been mentioned—the retrospective nature of the legislation. I intervened in that regard earlier but would like some definition of the numbers of people involved. It is difficult to secure accurate figures, but my understanding is that approximately 70 per cent. of people in this country die without making a will. Out of a population of 60 million, about 18 million make a will. The Law Society believes that about 15 million people have a will, so the legislation will affect all those who currently have an estate worth more than the inheritance tax threshold of £285,000. It will affect all who anticipate that, during the balance of their lifetime, their estate might fall within the inheritance tax net and all who set up a trust within their will. I pointed out earlier that that applies to virtually everyone who has made a will in the last six or seven years and who has children or a previous wife. It will also affect anybody who wishes to leave assets to their children or to grandchildren under the age of 25. Trusts would arise by virtue of the age of the potential beneficiaries.
	The estimate by the Society of Trust and Estate Practitioners is of the order of 1 million people. I have examined the basis for that calculation. It arose from a survey STEP undertook of its members immediately after the Budget statement. Only 11 per cent. of members responded, and they indicated that about 830,000 trusts would be affected. Extrapolating that figure to all the solicitors' firms that are members of STEP would produce a figure of around 8 million.

Helen Goodman: The hon. Gentleman is surely not suggesting that half the people who make a will have assets that are over the inheritance tax threshold. That would be ridiculous.

Philip Dunne: I did not intend to suggest that. I am trying to demonstrate that there is an enormous disparity between the real figure and the figure quoted by the Paymaster General in a rather defensive letter to the newspapers shortly after the Budget, suggesting that the measure would affect tens of thousands of people. There is no doubt that the figure will be substantially larger.
	I argue that millions—not 8 million, but some number of millions—of trusts and wills will need to be reviewed and arrangements altered over the transitional period in order that those assets will not fall within the inheritance tax net. That is the point that I was trying to make by citing the much larger number. Clearly, not all will have any prospect of falling within the net, but a very large proportion will.
	There are approximately 150,000 divorces every year in Britain. Regrettable though that is, the partners to the divorce will, under present legislation, almost by definition have to enter into a trust when they set up a will in the event of their divorce.

Dawn Primarolo: I am advised that divorcing couples tend to make a clean break. Solicitors who are involved in divorce cases say that trusts are not widely used in those circumstances. Perhaps the hon. Gentleman could elaborate on the facts.

Philip Dunne: My understanding is that trusts are used by the courts for the settlement of assets in every divorce case that goes through the courts. I accept that that would not necessarily be the case in the event of clean breaks, but it would apply in other cases where significant assets were involved. Those generally go through the courts.
	A further category that contributes to the numbers affected are couples who have recently entered into civil partnerships as a result of the legislation that came into effect earlier this year. Many of the new partnerships that have been registered will have taken the trouble to enter into a will, and, where assets are involved, those wills will need to be changed over the transitional period.
	Collectively, we are discussing large numbers of people. That undermines the Paymaster General's argument that the measure will affect a small number of people and generate a small amount of revenue.
	On the revenue front, I suggest to the Paymaster General, and I should like her to deal with this in her closing remarks, that she has misled the House. She indicated that the revenue gain from the proposal would be about £15 million in the first year. Let me suggest to her why that figure is so woefully wrong. Given the number of trusts and wills that will need to be reviewed and the cost of so doing with professional advice, there will be a significant VAT gain to the Exchequer from the measure. A big-four accountancy practice is currently writing to all its clients, where it is aware that trusts or wills exist, quoting a fee of £295 plus VAT—in total, £347—for the mere exercise of reviewing those people's current trust or will. It also suggests that a further fee will be incurred if people decide to make changes after the Finance Bill has been enacted.

Rob Marris: The hon. Gentleman might suggest to people that rather than going with the big four, they should join a trade union and get a free will.

Philip Dunne: Unfortunately, I cannot do so, because, as a result of data protection legislation, I do not have the names and addresses of the people to whom the practice has been writing. I am sure that other organisations are willing to offer a cheaper service, but the review charge calculated by the Society of Trust and Estate Practitioners is £341 rather than £347, so anyone who wants to take professional advice must incur a significant fee, which, because it is subject to VAT, will generate substantial revenue to the Chancellor. Some 1 million to 1.5 million such arrangements may need reviewing, which would generate roughly three times the revenue for the Treasury that the Paymaster General has indicated.
	The retrospective nature of the legislation raises a more fundamental issue, which is the credibility of the UK as an appropriate place for people with assets to invest or to seek to conduct their business. For many years, it has been an important tenet of tax legislation that retrospective legislation is not encouraged. Because this provision has been introduced with no consultation whatsoever with the industry, it fundamentally undermines this country's long-established reputation for fairness in its taxation dealings. I urge the Paymaster General to consider whether it is worth putting at risk this country's reputation among the wealthy and, in particular, the wealthy from overseas who might want to live here and do business here, by leading such people to think that long-established provisions on tax can be changed without consultation at the drop of a hat on a retrospective basis.

Rob Marris: The measure is not retrospective, although it may change people's expectations. When people of our generation took out mortgages in 1984, we got mortgage interest relief at source, which was later phased out. Our expectation as purchasers was that we would get MIRAS for the 25-year life of the mortgage, but there was no contract with the Government to that effect. The Government changed the position, but the change was not retrospective, although it changed our expectations, and the same is true of this legislation.

Philip Dunne: I accept that this legislation includes a transitional period over the next two years, but I still argue that many trusts that have existed for decades—centuries in some cases—will be significantly penalised. [Interruption.] The hon. Member for Rhondda (Chris Bryant) is laughing at the notion that trusts have existed for centuries. I have received representations from the Historic Houses Association—I am sure that other hon. Members have received such representations, too—pointing out that one of the reasons why this country has such a strong built cultural heritage, unlike many continental countries where different forms of taxation have existed and trusts, in particular, have not been involved in tax planning, is that trusts have been able to protect assets from one generation to another. That is not, as the hon. Member for Rhondda may think, a tax avoidance measure, but a measure to preserve assets as a whole, so that they continue to be viable, economically efficient assets rather than being split up among a family.
	That takes me to my next point: what is the purpose of such trusts? There is a perception among Members on the Government Benches that they are set up purely to evade tax. As I illustrated with my own case, trusts are usually set up to protect assets from individuals who cannot be trusted, or for valid planning reasons, particularly in relation to the increasingly acute problems arising from multiple families as society, sadly, evolves into individuals having more and more multiple families during their lifetime. If the Bill goes through, it will fetter the choices of spouses who are in a position to do so to allocate assets to provide maintenance for children, especially in the case of a second family where there are also children from the first family. I do not think that that is Government's intention. I assume that they have not thought this through, and I urge them to do so.
	I should like to draw attention to one or two deficiencies in the Bill's drafting. I am sure that we will cover them in greater detail in Committee. The argument was made rather hastily following the Budget—by the Paymaster General, I believe, although it may have been by one of her ministerial colleagues—that a specific carve-out for life policies will be written into trust, but nothing in the Bill does that. Will the Paymaster General to put me right on that, either now or when she winds up?

Dawn Primarolo: If the hon. Gentleman will forgive me, we are not discussing the Bill and the clause—I only wish we were—but his party's new clause. I will of course reply to his point at the appropriate time in Committee, and I look forward to doing so.

Philip Dunne: I look forward to that, too. Given that we are digressing for a moment or two, with your indulgence, Sir Michael—

Michael Lord: Order. The hon. Gentleman should not pray in aid my indulgence. As has been said, he must address his remarks precisely to the new clause that we are discussing.

Philip Dunne: I am grateful, Sir Michael.
	Several people, including spouses who are elderly or incapacitated by mental infirmity, will not be in a position to vary their trust arrangements or wills over the transitional period, and their estates will therefore suffer inheritance tax unnecessarily. I urge the Paymaster General to address that point specifically.

Rob Marris: As I understand it, new clause 2 suggests that everything be put on hold for two years. We may all be in some difficulty here, Sir Michael, because although this is not technically a stand part debate, the nature of the amendments means that in a sense it is. Will my right hon. Friend the Paymaster General say succinctly what the position was before 22 March and what it will be if her proposals are accepted by the Committee? For my part, and I suspect that of other right hon. and hon. Members, there is some confusion as to what the law was before 22 March and what it will be if the Government's proposals go through unamended.

Dawn Primarolo: Mr. Lord—

John Bercow: Sir Michael.

Dawn Primarolo: I beg your pardon, Sir Michael, and thank the hon. Gentleman very much. Would he like to come and sit on this side of the Committee?
	The hon. Member for Ludlow (Mr. Dunne) accused me of misleading the Committee, as the record will show. He may disagree with me—I certainly disagree with him—but I would not be as direct as to suggest that he may be motivated by personal interest in this Chamber, nor do I expect him to accuse me of misleading the Committee when I have not. I hope that he will withdraw that remark. I appreciate that he holds views that are deeply opposed to mine, but I have presented information to the Committee and I shall continue to do that. To suggest that a Minister or any hon. Member actively seeks to mislead is utterly wrong. I hope that he will now withdraw that suggestion.

Philip Dunne: I am delighted to clarify my remarks to the Paymaster General. I intended not to suggest that she had actively and deliberately misled the Committee but to point out that she had inadvertently misled the Committee because she had not understood the Bill's full implications.

Dawn Primarolo: That is probably as close as I shall get to receiving an apology but, when the hon. Gentleman reads Hansard, he will see exactly what he said.
	I shall begin with some of the other points that the hon. Gentleman raised. He asked why no consultation had taken place and said that there was nothing wrong with the sort of trust that we are considering. I shall revert in a moment to the general point about trusts that the hon. Member for Grantham and Stamford (Mr. Davies) made. Let me refer to a couple of quotes. On 12 April, the Daily Mail, that well-known Labour paper, reported:
	"A trust allows you to pass money to your heirs while protecting it from tax and keeping control over how the money is used . . . Why set up one? First and foremost, to ensure your heirs receive the maximum amount of money free from inheritance tax."
	If that is not sufficient, let us consider The Sunday Telegraph of 16 April.

Theresa Villiers: Does the Paymaster General prefer the view of the Daily Mail or that of the Law Society, the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners, the Low Incomes Tax Reform Group, the Law Society of Scotland, the Institute of Chartered Accountants of Scotland, the Association of Chartered Certified Accountants and the Association of Private Client Investment Managers and Stockbrokers, which say that the trusts under attack from the proposals have nothing to do with tax and everything to do with providing responsibly for one's family?

Dawn Primarolo: I find it best to answer one question at a time, and I shall come to those organisations and the hon. Lady's opening remarks shortly. To suggest that the way in which the Government prevent the trusts from being misused somehow damages women's rights is breathtaking, and I shall deal with that shortly.
	The hon. Member for Ludlow need only read The Sunday Telegraph of 16 April or The Sunday Times of 23 April, which make it clear that those trusts were being used to avoid inheritance tax by retaining control. The hon. Member for Chipping Barnet (Mrs. Villiers) mentioned transfer to the spouse. What could be more damaging to a spouse than to be told that a trust had been created that transferred the interest to her, only for her to find that she had no access to the capital and that, in three months, her interest was terminated and had passed on to somebody else, when she had been used as the shield to establish the trust, with the very purpose of avoiding inheritance tax? Even to suggest that using spouse relief in that way strikes a blow for women's independence is rather odd.

Julia Goldsworthy: I would be interested to know what evidence the Treasury had gathered of inheritance tax avoidance through the trust schemes. It is interesting to know the advice of the Daily Mail and The Daily Telegraph, but what is the evidence?

Dawn Primarolo: Of course, I shall come to that. I took part in a debate with one of the hon. Lady's colleagues earlier today and I find the Liberal Democrat position inconsistent and daft. This morning, her colleague argued that the Liberal Democrats want to narrow income inequality, yet this afternoon, she argues that she is happy for it to be perpetuated for the few who hang on to their money through the sort of wills that we are considering.
	The hon. Member for Grantham and Stamford rightly asked whether the Government were against trusts. He made an important point, and I would like to take this opportunity to clarify the situation. Of course the Government have not suddenly taken against trusts. He knows full well that we are talking about two particular types of trust. We believe that trusts have an important role to play in helping people to manage their affairs—of course they do—but we also believe that a person's choice whether to use a trust structure should not be tax-driven. That should not come as a huge surprise to the hon. Gentleman in the light of the changes that this Government have already made to trusts in previous Finance Bills.
	I hope that the hon. Gentleman would agree that it is unfair that some people exploit the trust rules in order to avoid inheritance tax. The right hon. Member for Wokingham (Mr. Redwood) made a similar point earlier. The Government are not labelling respectable people as tax avoiders. We are saying that a system has emerged in which two types of trust—accumulation and maintenance trusts, and interest in possession trusts—can, in certain circumstances, be configured to provide an unfair tax advantage at the expense of other taxpayers. That is what we are seeking to put right.

Several hon. Members: rose—

Dawn Primarolo: I shall just make this point, then I will give way.
	The hon. Member for Chipping Barnet said earlier—I am paraphrasing slightly—that if there was nothing inthe Bill that affected spouse exemption, the Conservatives would be happy. I would like to say that there is nothing in the Bill that affects spouse exemptions under the normal inheritance tax rules. We will come to the question of children and civil partners—all are protected. I have a feeling, however, that I shall not be allowed to stop there, so I will go into the detail of the relevant clause in order to address the points that hon. Members have raised. First, however, I shall give way to the hon. Member for Grantham and Stamford, then to the right hon. Member for Wokingham.

Quentin Davies: I am grateful to the right hon. Lady for giving way, and for addressing the points that we have raised this afternoon. She says that the Government have no agenda against trusts, and that she accepts that trust law can help people and families to organise their affairs in a rational way. She went on to say that she was worried only about tax avoidance and tax evasion. But what is the tax point involved in saying that the beneficiaries of maintenance trusts—I gave an example earlier—must have full disposal of their assets at the age of 18? Surely she can see the danger of a young person being given money in that way, and that it could be undesirable for individuals and families to have to act in that way. What is the tax point involved?

Dawn Primarolo: I answered that question on Second Reading. The point is that 18 is the age of majority. People can get married or serve their country at that age; they can do all the things that adults can do. People might want to write trusts in which the beneficiaries do not get control of the assets until they are 25, 35, 45 or even 52—that seems a good age today—but this is not about when the individuals get control of the assets, it is about when they come into tax. That is the point that is being made. The hon. Gentleman also knows that, with certain trusts, the beneficiary never materialises. The trusts go on in perpetuity. This relates to situations in which a spouse has the use of a property, for example, and on their death, the property transfers to the children of the first marriage. We need to discuss that matter further. We are not talking about when trusts end but when they never end, control remains and the beneficiary does not have access. That is the problem with which we are trying to deal.

John Redwood: What does the Paymaster General think would be the revenue cost over a five-year period were the Committee to pass the Opposition amendment as opposed to her proposal? I want to get a feel for how big the problem is over a five-year period, as such things take time to work through.

Dawn Primarolo: The Opposition new clauses would completely negate the Government's legislation, so everything scored in the Red Book would be lost. The right hon. Member for Wokingham understands—I was going to say "needs to appreciate", but that would be totally unfair, as I know that he does—that tax law is about making sure that a situation holds now and does not continue, as well as making sure that no other person is encouraged, and that large numbers of people are not encouraged, to use tax avoidance in that way. Surely, if inheritance tax is raised under certain circumstances with those exemptions—whether a gift and the seven-year rule or the spouse exemption on transfer—the Committee should expect the regime to operate in such a way. There is always a consequence, and if a tax regime is used in a way that it should not be and left unchallenged, the problem will get greater and greater—a point that hon. Members often make to me, saying, "Why are you acting now? Why didn't you act last year? How do you work the balance?" That is the clear answer to the right hon. Gentleman's point.
	The right hon. Gentleman also spoke about retrospection, but I completely reject the idea that there is any retrospection. The Government have provided for a two-year transition. If the provision is not enforced until 2008, how can there be retrospection? Everyone will have the opportunity to make the necessary changes.
	The hon. Member for Chipping Barnet then adopted the "Let's make it up, because it must be true if we say it," approach. She said that pension and death-in-service payments will be caught by the Bill. That is absolutely not the case. Let us have some rational debate, and hear what the Opposition say about why their new clauses are better. When we discuss that in Standing Committee—the Opposition chose to discuss it in Committee and not on the Floor of the House—we can go through all those issues. It is utterly ridiculous, however, to table a new clause and then say, "Because I say so, it must be true."

Theresa Villiers: The point about retrospectivity is that many trusts cannot be varied. One would have to go to court and spend a large amount of money on it, and even if a court hearing were to take place, not all courts will allow the trust to be varied. Therefore, the provisions are retrospective, because not everyone will be able to adapt the existing arrangements to comply with the new rules.

Dawn Primarolo: The hon. Lady does not know what she is talking about. Legally qualified Conservative Members pointed out on Second Reading that the legal advice is always to review one's will regularly—at least every two years. If I decide that I want to vary my will, I do not have to go to the High Court to do it; I vary my will. The regulations in place for a variation of a will after death or in the circumstances of incapacity—as raised on Second Reading—are clear. Opposition Members are trying to isolate the measure completely from the interaction of all the inheritance tax and trust rules, and they are simply wrong.

Brooks Newmark: rose—

John Bercow: rose—

Dawn Primarolo: I will give way first to the hon. Member for Braintree (Mr. Newmark) and then to the hon. Member for Buckingham (John Bercow), and then I would appreciate it if I could make some progress on the new clause.

Brooks Newmark: My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) was spot on in referring to the retrospective nature of the Bill. Retrospectivity in this context means that individuals will have to change trusts that are already in place. Non-retrospective legislation would say "From this point on"—or, in the case of this Bill, in two years' time—"these will be the rules." The Bill is retrospective because it will force people to change existing wills and existing trusts.

Dawn Primarolo: I know that the hon. Gentleman is new to the House, but pretending that the world began only when he entered it is utterly ridiculous. Did the Conservative Government agree that when they reduced mortgage interest relief at source—MIRAS—they were doing something retrospective? No, they did not. When they reduced the married couples allowance, were they taking retrospective action because of the expectation that existed? Of course they were not. When they reduced advance corporation tax relief, was that a retrospective measure because all the companies said that they had expected to receive it in perpetuity? Of course it was not. That is such a ridiculous point that I am surprised that the hon. Gentleman wanted to make it.

John Bercow: I am a bit suspicious. I have a high regard for the Paymaster General, but she treated a serious and thoughtful inquiry from my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) as an opportunity to launch into a stream of rather unnecessary invective. May I ask the Paymaster General a simple question? Is she seriously saying that it is ordinarily possible for someone to alter the terms of an existing trust as quickly, simply or inexpensively as that person could alter his or her will? That was the gravamen of the question that my hon. Friend asked, and it deserved a more serious response.

Dawn Primarolo: The hon. Gentleman and I have known each other for quite a long time. He knows very well that I have not even started on the invective yet.
	The point is that the wills set up the trusts, either in the lifetime of an individual or on death. The will is the trigger, and those who want to change their wills can do so. The trusts make it possible to plan for a tax that has not yet been triggered, to retain control of assets whose control will be determined after death. They control the assets beyond death to determine who will get them and who will not. I do not think it unreasonable for us to say that if a trust specifies a certain beneficiary after a certain event, that beneficiary should receive the product.

Rob Marris: Will the Paymaster General give way?

Dawn Primarolo: I will, but it will be the last time.

Rob Marris: I am grateful to the Paymaster General for her generosity.
	I am becoming a little confused by some of the comments made by Opposition Members. Perhaps I have misunderstood the Government's proposals. I thought that the proposals did not affect trusts that had been set up, say, a year ago—trusts that already exist. If that is the case, the hon. Member for Chipping Barnet (Mrs. Villiers) is wrong; if not, could the Paymaster General explain why?

Dawn Primarolo: People have two years in which to ensure that there is a proper end to a trust. In that sense, such trusts are affected; otherwise, it would be a bit like our saying, "Just because you have already successfully planned a tax avoidance, we will leave it in place."
	It may help the Committee if I explain the purpose of the measure and what it does before dealing with the new clauses. As I have said, the purpose is to stop inheritance tax avoidance through the use of certain types of trust—not all trusts. Before the Budget, it became clear that some wealthy individuals were using trusts in that way. The avoidance worked in different ways, and was often highly technical, but the end result was the same: substantial assets passed from generation to generation with no inheritance tax ever being paid.
	I have made it clear that the Government consider it unfair that a small number of wealthy people should be able to exploit trusts in that way by combining rules. The new rules prevent such unfair avoidance, while protecting straightforward and sensible arrangements made by honourable people.
	This measure brings accumulation and maintenance trusts and interest in possession trusts into the mainstream tax rules for discretionary trusts. It does not, therefore, create a new regime; it merely brings such trusts into the regime that applies to all the others. The money put into a trust during a person's lifetime—

Theresa Villiers: Will the Paymaster General give way?

Dawn Primarolo: If I can explain what the provision does, it might help in dealing with the misunderstandings. In respect of money put in trust during a person's lifetime, charges apply on assets over the IHT threshold—currently £285,000—at 20 per cent. on entry. So assets over the value of the threshold get charged at 20 per cent. on entry, and at 6 per cent. every 10 years after that. The only exemption for trusts created during life is that applying to trusts for disabled people, an issue to which we will return.
	Where money is put into trust on a person's death, the IHT is due on the estate, as is normal, unless spouse relief or some other exemption applies. If a trust is then set up, it is exempt from charges if it is for a disabled person; if it is an accumulation and maintenance trust set up by a partner for their bereaved child, who will take the assets outright at the age of 18; or if it is an interest in possession trust for the benefit of one person with outright ownership of the assets, passing to another person when the trust ends. That is a very straightforward arrangement and it is in line with existing trust arrangements.

David Gauke: Will the Paymaster General give way?

Dawn Primarolo: Perhaps the hon. Gentleman will allow me to make at least some headway on the reasons why the new clauses and amendments, including his own, are unacceptable. Having done so, I will of course give way to him.
	All the new clauses and amendments before us are unnecessary, because what is asserted will happen will not, in fact. Ever since Budget day, when the Government announced that we planned to change the IHT rules for trusts, there has been enormous misunderstanding, which has continued today. Bearing that in mind, let me remind the Committee what spouse relief is about and what impact our proposals in clause 157 and schedule 20 will have on such relief.
	Spouse relief is an inheritance tax exemption on transfers from one spouse to another. So if property starts in the ownership of one spouse and ends up in the ownership—I stress, ownership—of the other, the situation is straightforward: the transfer is exempt from IHT. That means that the bequest rules apply if a gift from one spouse to another is made when both spouses are still living, so let us be clear: our proposals in clause 157 and schedule 20 have no relevance at all to such cases. For the vast majority of people with straightforward affairs, all that they need to know about the IHT proposals is that spouse relief exists and that a transfer can be made to their spouse. The potential overlap between spouse relief and our proposals only arises, therefore, in cases where partners want to use trusts on or after Budget day to make a less than straightforward gift or bequest.

David Gauke: Will the Paymaster General give way on that point?

Dawn Primarolo: No; please let me make some progress on these points.
	Transferring assets into trusts is very different from making an outright gift; some people have tried to argue that they amount to the same thing, but they do not. The recipient of an outright gift can do with it as they please, with or without the consent of the person who made the gift—they are the absolute owner. However, if a person places money in a trust, it must be used by the trustees in accordance with that person's wishes. It is the fact that control can continue long after the settlor's death that makes the difference.
	Inheritance tax rules for interest in possession trusts have conferred the same exemptions that would apply if putting assets into trusts were identical to making an outright gift. The result has been that interest in possession trusts can be—and regularly is—used as a highly flexible money box and a long-term shelter from inheritance tax liabilities. That usually requires the settlor to get rid of assets in his lifetime but, where the spouse relief is available, it is possible for the settlor to hold on to his assets until death and completely wipe out any inheritance tax liability, in both the present and the future—all without giving the surviving spouse or civil partner any influence whatsoever over the assets in their name.
	Of course, some cases are not avoidance-driven, and a number of exemptions provide appropriate protection for the people involved. First, spouse relief will continue where an interest in possession trust is set up in a person's will to give a life interest to a bereaved spouse or civil partner provided that, when such interest ends, the assets are taken outright by someone else. No further flexible power is necessary in the trust, because it has delivered its objective.

David Gauke: Will the Paymaster General give way on that point?

Dawn Primarolo: I want to make three points. Opposition Members continually claim that various eventualities will not be covered or that different outcomes will arise. When I tell them that they are wrong, they want to ask other questions. Let us deal first with what is on the table.
	Secondly, spouse relief will continue if a person dies without a will and their assets are passed to a bereaved spouse or civil partner, whether or not a trust is created under the intestacy rules. Thirdly, the rules will continue to provide for post-death changes where people die with an out-of-date will. If that will provides for a trust that would not qualify for spouse relief under our new rules, the interested parties will have the opportunity that they have always had to put things right. That is another answer to the question about retrospection.

David Gauke: I have two questions. First, will not the possibility of variation allow people to get around the tax avoidance that the Paymaster General mentioned earlier, and so make these provisions ineffective? Secondly, the right hon. Lady described the conditions under which an immediate post-death interest will apply and inheritance tax is not payable. Does she accept that, in the vast majority of cases, trusts contained in wills will not meet those conditions?

Dawn Primarolo: I accept that people who transfer assets under the spouse exemption provisions do not need a trust to safeguard that exemption. I also accept that the gift provisions do not require a trust to be imposed between donor and recipient, and that assets should be transferred to a recipient when that is the donor's clear intention. Assets should not be held in a halfway house that means that the recipient does not get control and that the state does not get the inheritance tax to which it is entitled. Ending that possibility is precisely what the proposed changes are designed to achieve.
	The new clause and the other amendments would once again make it possible for the wealthy few to use inheritance tax exemptions and rules to get reliefs beyond their entitlement. By the targeted use of changes to the particular types of trust being used in such cases, the Government propose to preserve the rules and make sure that they are used as they were always intended. For that reason, if the hon. Member for Chipping Barnet and her hon. Friends push the new clause to a vote, I shall ask my hon. Friends to oppose it and I look forward to debating the provision in detail in the Standing Committee.

Theresa Villiers: I shall review briefly some of the comments that have been made. We began with the hon. Member for Rhondda (Chris Bryant) who expressed with passion his support for inheritance tax and his criticism of the exemptions.
	We then heard from the hon. Member for Falmouth and Camborne (Julia Goldsworthy) who drew on a theme mentioned by many Opposition Members. She pointed out that the proposed changes could affect as many as a million wills and referred to the 4.5 million people who would probably have to review their life assurance policies. She also mentioned the problems in relation to people who have died since the Budget.
	My right hon. Friend the Member for Wokingham (Mr. Redwood) referred to the fact that many people of modest means will be affected by the proposed changes. He pointed out that they are retrospective. I agree with him wholeheartedly, especially because it may not be possible to vary existing trusts. They are affected by the provisions and the courts may refuse variations. It may also be difficult to vary wills, especially when the person who made the will has lost capacity. There will be retrospective effects.
	My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) said that the current rules generally deem trusts to be tax-neutral, so they are treated similarly to outright gifts. He pointed out that the Government's proposals would impose penalties on trusts that do not apply to outright gifts. He referred to the long history of the spouse exemption and to the practical difficulties of meeting the six exacting conditions of the draft proposals. Most tellingly, he drew attention to the suspicion that prejudice must be motivating the Government's approach to trusts and argued for a more targeted solution, rather than taking a sledgehammer to crack a nut.
	My hon. Friend the Member for Grantham and Stamford (Mr. Davies) said that it was important to improve the rationality of the proposals. He, too, pointed out that the Bill seems to attack trusts for no good reason. My hon. Friend the Member for Braintree (Mr. Newmark) noted that the provisions would hit the vulnerable. He sought clarity and emphasised the importance of retaining the spousal exemption to prevent double taxation of the single estate of a husband and wife.
	The hon. Member for Dundee, East (Stewart Hosie) talked about the impact of the proposals in Scotland, where thousands of people could be affected. He made the good point that the Government have not held proper consultations. My hon. Friend the Member for Ludlow (Mr. Dunne) emphasised the point about retrospectivity and said that the proposed changes would affect a wide range of people, giving instances of their impact on divorce.
	The proposals on spousal exemption will have a significant impact on a wide range of ordinary, hard-working people. If the Paymaster General is not prepared to take our word for that, she should take the word of the professional organisations to which I referred earlier. They say:
	"The Government's proposed changes to inheritance tax on trusts amount to a tax on prudent families. They will affect millions of ordinary families and not, as the Government has suggested, only the super-rich."
	Unless the proposals are amended, in line with our new clause and the many more amendments that we shall table in the Standing Committee, they could leave a million people having to redraft their wills, facing a legal bill of about £275 million. The measure will hit the vulnerable, the young and the bereaved, so I intend to press the new clause to a Division.

Question put, That the clause be read a Second time:—
	The Committee divided: Ayes 193, Noes 285.

Question accordingly negatived.

Clause 61
	 — 
	Computer equipment

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Prior to 6 April 2006, employers who made computer equipment available for private use by their employees could do so tax-free, providing that the annual amount of the benefit in kind was £500 or less—that is the equivalent of £2,500 of computer equipment, inclusive of VAT. The clause removes that tax exemption. With effect from 6 April 2006, a tax charge will arise on the benefit in kind that arises in those circumstances. However, the clause does not change the position when an employer provides the use of computer equipment solely for work purposes and private use by the employee is not significant.
	The question that everybody has been asking is: why are the Government doing this? It is perfectly true that many employees have benefited from the tax exemption, but the home computer initiative has been used extensively by groups that we would not generally expect to have difficulty accessing information technology. For example, 25 per cent. of those participating in the home computer initiative are higher rate taxpayers—more than twice the proportion among taxpayers as a whole. Furthermore, nearly one third of HCI participants are from white-collar industries—often defined as industries with a greater proportion of higher-than-average earners.

Peter Luff: What the Paymaster General is saying is news to the industry, which was not consulted about the problems that the Treasury suddenly discovered at the eleventh hour, just as the ink was drying on the Budget. On the specific point that she just raised, would she say the same thing to the 15,000 nurses who have benefited from the HCI scheme or the 21,000 Tesco employees, who are probably not at the top end of the earning schedule? The evidence was that that level of employee was benefiting more and more from the scheme.

Dawn Primarolo: The information comes from the industry. The hon. Gentleman interrupted me rather early on in my remarks. I was certainly not saying that nobody had benefited from the HCI scheme. The case that the Government are putting is that the benefits have slowed down to a point at which the growth is very small. In particular, it is not targeted on the remaining groups that we need to assist—those on low pay. I was just about to turn to that point.
	Last month, the Low Pay Commission published the findings of its review of benefits in kind, salary sacrifice schemes and the accommodation offset. It found that take-up rates were often quite low and many part-time low-paid workers would gain no advantage from salary sacrifice schemes for home computers and other benefits in kind. Her Majesty's Revenue and Customs has evidence that, unfortunately, the tax exemption was being used beyond the scope of its original intention.
	On the one hand, the initiative has reached a number of people and has increased usage. On the other hand, it is not targeted particularly at the low paid and its effectiveness has been slowing down, and, in addition, it is being used beyond its original intention. For example, the HCI packages included items such as game consoles and MP3 players and allowed employees to buy equipment out of their gross pay, rather than borrow it. Furthermore, the cost of computer equipment has fallen markedly since 1999 when—

Peter Luff: Will the right hon. Lady give way?

Dawn Primarolo: I wonder whether the hon. Gentleman will let me make some progress. I, too, have read the brief from the industry that he has and that has been circulated. If he listens to all my remarks and then contributes to the debate, I will be happy to return to any outstanding matters.
	The cost of computer equipment has fallen markedly since 1999 when the exemption was introduced. Figures produced by the Office for National Statistics show that an equivalent computer that cost £2,500 in 1999 would have cost under £700 in 2005. The Government have therefore concluded that the time has come to remove the exemption and to focus Government support in a better way to improve access to technology for groups with the poorest existing access, such as the unemployed, the elderly and the low paid.

Peter Luff: Will the right hon. Lady give way?

Dawn Primarolo: I will, but this is the last time that I will give way to the hon. Gentleman. I will then try to make my case and then he can contribute to the debate. If there are any outstanding issues at that stage, I will reply to them.

Peter Luff: This is a debate in which it would be good to have answers to questions. I asked the right hon. Lady's Department questions a month ago, but I have not had answers, so I have to ask those questions now, in this format—otherwise I might have been able to accelerate her speech. Will she please do the Committee the courtesy of producing the evidence that she has about the so-called abuse of the scheme? It does not exist. The industry specifically asked for MP3 players not to be included in the scope of the scheme, but the Treasury insisted that they should be. The industry would be happy to see them excluded. The other equipment to which she referred was not being offered under the terms of the scheme; it was being offered as part of marketing brochures alongside it. The full price was paid. If she has that evidence, please will she produce it? It is important that we see it.

Dawn Primarolo: I am happy to produce that evidence. Indeed, I am happy to produce it to the hon. Gentleman for the company in his constituency for which he has been making the case. The evidence comes from its marketing websites. I think that he will be somewhat shocked when he sees the extent to which packages were being put together involving items that were not supposed to be included in the HCI. That is in addition to the difficulty with take-up. I cannot say that I will put the information in the post to him tonight, but I will certainly do so tomorrow morning and he can look at the evidence. Alternatively, I can give him the website addresses and he can look at them himself—he does not have to take my word for it.

Mark Francois: The evidence of one or two websites is not enough to damn a whole scheme. If the Government have such compelling evidence of abuse, will the Paymaster General explain why so little hard evidence was produced in the regulatory impact assessment that they rushed out last week?

Dawn Primarolo: The Opposition change their argument as they lose each point. The issue with regard to abuse of the scheme—as well as its lack of targeting, the importance of better focusing it, and the problems of not consulting where there are abuses in the scheme because of forestalling—are well known by all Members. If the hon. Gentleman will allow me to continue to make my case, he will be able to make his and further points can be made.
	Following the publication of the digital strategy in April 2005, the Government have continued to acquire an evidence base to enable them to consider focusing their support. In November 2005, the Government published their "Inclusion through Innovation" report. It examined where information and communication technology might deliver the most benefit to excluded groups and considered how that might be achieved. The report found that barriers to using ICT included a lack of relevant content, poor awareness of where to access ICT and a lack of preliminary skills, such as literacy or English language skills. The report also noted that digital inclusion does not mean simply
	"connecting everyone to the internet".
	Community ICT access and intermediaries all form part of a multi-channelled approach that will deliver for the targeted groups. The Government are making the case that it is necessary to use those resources to target the groups in greatest need and in which take-up is lowest.
	To ensure the best use of ICT in tackling this type of social exclusion, I am announcing today that the Government are setting up a dedicated digital inclusion team—[Hon. Members: "Oh."] The industry does not mind being represented on the team, so it does not think that the team is to be ridiculed. The team will champion examples of excellence in using highly effective and efficient ICT to tackle the key drivers of exclusion. It will also promote local and national leadership and understanding of the considerable potential of ICT to make a significant improvement to the life chances of excluded people and areas.

Adam Afriyie: Will the right hon. Lady give way?

Dawn Primarolo: No, I will not give way to the hon. Gentleman. Perhaps he will let me make some progress.
	Furthermore, I can today announce that we are changing the aims and objectives of the digital strategy to focus on digital inclusion, which reflects the shift in the Government's focus towards a more targeted approach. The strategy is a genuinely cross-government programme that recognises that only concerted action across Government Departments will realise our objectives. As I have said, access to ICT is about more than access to computers. Other technologies, such as digital television, give disadvantaged groups the opportunity to engage with ICT. The UK has a world-leading position in digital television, with more than 70 per cent. of households now accessing that technology.
	The Treasury will work collaboratively with industry as we look towards meeting the goals of the digital strategy. We will keep the focus on targeted interventions to help those with specific difficulties. We will build on the success of more than 6,000 UK online centres, more than half of which are located in the 2,000 most deprived wards in England, so that 95 per cent. of the population live within 5 km of such a centre. Because we want to ensure that future generations gain access to technology, the Government are giving £50 million over the next two years for schools to invest in home access to ICT for their students and a further £10 million to provide internet connectivity to the home access network. The announcements make substantial inroads into achieving our objectives, but we will conduct a review in 2008 to explore whether further action is necessary to close any residual digital divide.
	I have written to representatives from industry to invite suggestions on the most effective way to focus our support on targeted groups. The Department of Trade and Industry will review the options put forward over the next few months and consider how the Government's objectives can be met.
	I would like to provide the reassurance for which I know that some have already asked—the hon. Member for Mid-Worcestershire (Peter Luff) has done so—on computer equipment provided for business purposes. Clause 61 does not change the position for computer equipment provided solely for work purposes when any private use by the employee is not significant. We acknowledge employers' concerns in this area and Iknow that HMRC has been approached by representative groups to work through the issues. I have asked HMRC to work with those representative bodies to ensure that clear practical guidance is produced to help to keep employers' compliance costs to a minimum.
	The Government's policies of liberalisation and competition have led to the strong take-up and use of ICT. The creation of new and innovative services and falling prices have all contributed to that. The HCI has played its part in the strong take-up, but it is not appropriate for the Government to keep the scheme going beyond its useful lifespan. The announcements that I have made today will ensure that all can benefit from technology in a cost-effective manner. I commend the clause to the Committee.

Mark Francois: I want clause 61 to be deleted from the Bill for the chief purpose of saving the popular home computing initiative from abolition by the Government. As we are asking the Government to relent, even at the eleventh hour, I will begin by wishing the Paymaster General a happy birthday. I congratulate her on reaching the age of 29—on a seasonally adjusted basis.
	The genesis of the home computing initiative was section 45 of the Finance Act 1999, which said that employers could provide computer equipment including
	"printers, scanners, modems, discs and other peripheral devices designed to be used by being connected to or inserted in a computer"
	for the use of employees and their families at home without the employee incurring a benefit in kind for the purposes of income tax. The measure was designed to help to spread computer literacy among the population. In March 1999, the Chancellor himself proudly told the Daily Record:
	"Britain can no longer afford to lag behind America. Inequality in computer learning today will mean inequality in earning power tomorrow".
	Between 1999 and 2003, however, relatively few companies took advantage of the tax exemption, largely because it was not widely known or appreciated. In 2003, a working group was formed under the office of the e-envoy to examine how a specific scheme to loan computers to employees, including for private use, might be implemented. Partly as a result of that, the Income Tax (Earning and Pensions) Act 2003 included, in section 320, additional tax incentives specifically to encourage companies to loan computer equipment to their employees up to a maximum tax-free value of £500 a year. It is that section of the ITEPA 2003 that clause 61 would delete. That would have the consequence of effectively sounding the death knell of the scheme, which is why I am asking the Committee to reject the measure.
	The home computing initiative, as we have come to understand it, was effectively launched in January 2004 by the Department of Trade and Industry, which, by that time, had taken on board departmental sponsorship of the project. The DTI published specific guidelines for employers and employees on the home computing initiative, thus effectively popularising the scheme. The DTI press release at the time, which contained supporting endorsements from Sir Digby Jones of the CBI and Brendan Barber of the TUC, promoted the scheme in the following terms:
	"For employers HCI schemes are about maximising potential in the work place. Basic computer and technology skills are now regarded as essential for the majority of jobs. With home computer access IT confident employees have greater capacity to contribute to an organisation's overall performance and adapt more easily to new roles and opportunities. HCI schemes can also generate employer National Insurance savings."
	In practice, the scheme has usually been financed by so-called salary sacrifice, in which employees accept a small decrease in pay in return for being loaned computer equipment by their employer. The employer in turn benefits by paying a reduced rate of national insurance contributions to the Treasury.
	We believe that it is ultimately for financial reasons that the Treasury wishes to abandon the scheme. That was effectively confirmed by the Prime Minister last Wednesday when, in reply to a question asked by my hon. Friend the Member for Mid-Worcestershire (Peter Luff), the Chairman of the Trade and Industry Committee, he said:
	"we have to ensure that in any such initiative we obviously balance the revenue that is coming in with the support that is being given."—[Official Report, 26 April 2006; Vol. 445, c. 570.]
	The decision is thus ultimately financial, as I shall go on to emphasise.

Michael Wills: As far as I understand the case that the hon. Gentleman makes, he seems to agree with the objectives of the initiative. I am sure that he would agree that in such a fast-moving world, it is important to keep reassessing the effectiveness of initiatives. If the digital inclusion team that my right hon. Friend the Paymaster General announced came up with a scheme that would better meet Labour Members' objectives, which I understand he shares, would he support that, or is the home computing initiative the only possible scheme that he can imagine supporting?

Mark Francois: I shall outline how we believe the scheme can be revised so that it should survive. I am not saying that there should be no modification of the current scheme. I shall outline, as I have said, how we believe that the scheme could be modified both to save money for the Treasury and to improve its operation. I hope that the hon. Gentleman will be patient.

Peter Luff: Does my hon. Friend agree that there are two separate points, the first of which is how best to achieve the objectives that are shared across the House? It is difficult to disagree with a word about the objectives in what the Paymaster General said. Secondly, there is the issue of how we move from the one scheme to the other. Would it not have been much better if the Government had signalled now that they want to change the method, if they do—I do not think that they need to do so—and give the industry a year to adjust to a new method, rather than writing a P45 directly from the office of the Chancellor of the Exchequer for the workers in the HCI industry?

Mark Francois: I agree with my hon. Friend. We are looking to the Government this evening for some indication, when the Paymaster General replies, that they intend to retain the scheme, even in a modified form. We are not saying that there can be no change. However, we want an indication from the Minister that if the Government believe that there is abuse, they will modify the scheme to respond to that while maintaining its inherently positive characteristics. I shall press the Paymaster General on exactly that point in a moment.
	The scheme has proved popular, with about 500,000 people taking advantage of it effectively to hire a computer from their employer to help to improve their IT skills as part of a modern knowledge-based economy. This is especially important when we are seeking to improve IT skills to allow the UK to continue to compete with economies such as China and India in the 21st century. According to a recent analysis carried out by Hewlett-Packard, China and India between them now produce more than 120,000 IT graduates each year. How are we to compete effectively with that if we are bringing in measures to reduce the spread of IT literacy among our population, which is what the proposed change threatens to do?
	A Cabinet Office press release was timed to coincide with the launch of the new initiative in January 2004. It highlighted survey findings that employees with a PC at home had better IT skills and were more familiar with the internet. The DTI guidelines on HCI were entitled, "Maximising Potential in the Workplace". Along with advice on implementing the scheme, numerous references were made to skills. For example, in the CBI's booklet, Sir Digby Jones was quoted as follows:
	"Of all the workforce skills required today, there's no question that basic IT literacy is one of the most important . . . Getting IT into the DNA of the workforce must therefore be a primary objective for every organisation that wants to adapt to the high-skills economy of the future."

David Taylor: Does the hon. Gentleman accept that the spreading of IT skills of the type that he is describing in the workplace has been under way in a number of areas for quite some years? For example, there is the CLATES qualification, the ECDL and the driving licence system, and other methods have also had significant success with fewer costs and with less of the vulnerability that has been shown to be part of the present scheme that is now being reformed.

Mark Francois: I accept, with the hon. Gentleman's background in accounting, that some other measures have helped in that regard. Nevertheless, the scheme that we are discussing has been particularly effective and particularly popular, and that is all the more reason not to scrap it. I shall outline the specific advantages as I continue, though I take the hon. Gentleman's point.
	In 2005, the Minister of Communities and Local Government, the right hon. Member for South Shields (Mr. Miliband), told his regional press the following about the scheme:
	"As technology and IT-based business becomes an even bigger part of our regional economy, it is vital that the workforce develops the skills that will keep us competitive. That process should begin in the home so that everyone has the opportunity to become comfortable and competent with computers. That is why the Government is offering tax breaks which reduce the cost of computers to employees while saving money for their employers."
	To coincide with the second anniversary of the scheme in 2006, Brendan Barber, the general secretary of the TUC, said:
	"Experience has shown that when a business implements an HCI scheme, demand for learning services and training rises significantly."
	In short, the HCI scheme has been hailed as an important part of the drive to improve the nation's IT skills, by the Government, in the form of the DTI, and the umbrella bodies of both British industry and the trade union movement combined.
	The scheme has enabled almost half a million people to obtain a computer through HCI. Equipment is not only more affordable, but it usually comes with added peace of mind because of features such as warranty cover for the length of the hire agreement and technical support. So, for many who would not ordinarily have had a PC at home, whether because of lack of access to credit, affordability or simple technophobia, HCI has provided a low-risk, cut-price option which allows them to access the world of information technology, to the benefit of themselves, their families, their employer and, ultimately, the wider economy as a whole.
	The Government have sought to argue that they are looking for a scheme that is of more benefit to retired people and jobseekers. However, scrapping a scheme that was already working for those in employment and was, indeed, primarily for the benefit of low-paid workers is not the answer.

Kevan Jones: I get confused these days about what the Conservative party is. Is the hon. Gentleman really saying that he is supporting trade unions, for example, and is supporting also the TU learning fund, which has brought learning, including IT skills, into many workplaces throughout Britain, to some of the lowest paid workers? Are we now getting a call from the Conservative Benches in support of the initiatives that have been introduced by the Government that have helped many workers in workplaces in my region, but which they opposed last year?

Mark Francois: I can tell the hon. Gentleman that the trade union movement, from the general secretary of the TUC downwards, are opposed to the abolition of the scheme, not least because at a local level many trade union officials have put a lot of work into persuading employers to adopt it. The hon. Gentleman must understand, irrespective of the learning fund, that the scheme is one that the trade union movement wants the Government to retain. I have a few quotes to drum that point home in case the hon. Gentleman did not get it the first time around.
	Scrapping a scheme that was already working for those in employment will not solve the Government's problem in respect of others. According to the HCI Alliance, 60 per cent. of the scheme's participants are in blue-collar industries and 75 per cent. of them pay the standard rate of tax, or lower. Moreover, as Intel, the computer supplier, argued in a recent letter to me:
	"As this scheme is run through the employer even the most financially excluded are able to join. The fact that blue collar workers in the future will be denied such an incentive is genuine cause for concern. This has the potential to create inequity within low paid, hard working families and workforces. 21,000 Tesco workers recently adopted this scheme, many would not have a computer today if this had not been offered to them."
	Similarly, Brendan Barber—I hope that the hon. Gentleman is listening—general secretary of the TUC, who has also personally endorsed the scheme that we are trying to save, wrote to the Chancellor requesting a rethink and issued the following statement on 3 April, stressing the value of the scheme, in particular, to the low paid. He said:
	"The Home Computing Initiative has helped thousands of low paid workers without confident IT skills buy their first ever computer. Unions up and down the country have been promoting the scheme, often linked to training schemes. The sudden closure of the scheme would mean that many hours of voluntary union effort would go to waste."
	Any politician—Tory, Labour, Liberal Democrat or otherwise—will understand the clear intent that lies behind that statement.

Adam Afriyie: rose—

Mark Francois: On that basis, I will give way to my hon. Friend the Member for Windsor (Adam Afriyie).

Adam Afriyie: I thank my hon. Friend for giving way after being so generous in giving way earlier, unlike the Paymaster General. It was clear that the right hon. Lady wanted to establish her case for the abolition of the HCI. The only case that I heard her make was against the Government—a case against abolishing the HCI and a case against the Bill. It seems to me that if there is a better way of approaching the provision of information technology to workers at home, surely that better approach should be described and implemented before the existing scheme is removed. It seems that we are in a bizarre situation when a scheme is being removed that has clearly been successful, but there is nothing to replace it.

Mark Francois: I thank my hon. Friend for that contribution. The Paymaster General's case can best be described as citing a number of instances of abuse. She referred to a few websites and that was about the extent of it. In the course of my remarks, we can test exactly how much abuse there has been, and then the House can take a decision before we enter the Lobbies.
	Let no one argue that the home computing initiative does not benefit people on modest incomes. The Trades Union Congress, companies such as Intel and others have clearly demonstrated that it does. As for the take-up of the scheme, it has taken off in the past year or so and has proved particularly popular in the national health service, with more than 100 trusts and hospitals across the country promoting the scheme to their work forces, including King's College hospital, the Norfolk, Suffolk and Cambridgeshire strategic health authority, the West Midlands ambulance service and even the Sedgefield primary care trust—I hope that that is not the reason why the Chancellor wants to get rid of it. A number of charities have adopted the scheme, including St. John Ambulance, the Institute of Cancer Research, the Royal London Society for the Blind and the Motivation charitable trust, which works with people with a mobility disability and is based in Bristol, not far from the constituency of the Paymaster General.
	The scheme has been adopted by a number of private sector organisations, including the British Chambers of Commerce, the Great North Eastern Railway and Yorkshire Water. In total, according to the HCI Alliance, more than 1,000 public and private sector organisations have adopted the HCI scheme to date, often with local trade union support, to help to improve their employees' IT skills. All of that will be put at risk if we do not delete clause 61.

Dawn Primarolo: The hon. Gentleman has listed all those fantastically important schemes, but can he explain why the proportion of households owning a computer has risen by only four percentage points since 2004?

Mark Francois: I have already explained to the Paymaster General that the scheme was on the brink of taking off. Sweden has the highest personal computer penetration in the world, and one reason is that it has been running a successful scheme for a number of years.

Dawn Primarolo: Will the hon. Gentleman give way?

Mark Francois: As a courtesy to the Paymaster General, I shall do so.

Dawn Primarolo: I am grateful, because I do not want the hon. Gentleman to dig himself into a hole. He said that the scheme was just taking off, but from 1999 to 2003 the increase was 29 percentage points.

Mark Francois: If the Paymaster General had done me the courtesy of listening, she would know that I explained that between 1999 and 2003 the scheme was relatively unpopular, so the Department of Trade and Industry effectively rebooted and relaunched it in 2004, with clearer and better publicised guidelines. The scheme has now begun to take off, and 500,000 users around the country are dependent on the scheme. It is rather worrying that the Paymaster General—a Treasury Minister—will not listen to basic statistics.

Peter Luff: What I have heard from the Paymaster General confirms my worst suspicions. She does not have the slightest idea of what is happening on the ground, as Her Majesty's Revenue and Customs have seriously misled her about the true facts. When the scheme was rebooted, as my hon. Friend said, in January 2004, it took several months for the industry to gear up, but the advantages are only being experienced now. That is why the costs of the scheme are projected to increase every year in the Red Book.

Dawn Primarolo: Four per cent.

Peter Luff: It is no good the hon. Lady saying that, as the scheme was on the verge of success at the precise moment at which the Government scrapped it.

Mark Francois: As I shall argue, the ultimate reason for the scrapping of the scheme by the Government is its cost. My hon. Friend has hit the nail on the head and the Paymaster General should explain why, if the scheme is not popular, the Treasury's own projections in the Red Book and the regulatory impact assessment to 2011 forecast an increase in costs? If take-up is not good, why does the Treasury expect it to cost more? The Paymaster General must dig herself out of that hole.

Dawn Primarolo: I said that there was misuse.

Mark Francois: I shall come on to that, and I shall prove that it is not taking place on a scale that would justify the abolition of the scheme.
	The initial decision to scrap the home computing initiative, once it was discovered hidden in the Budget of 22 March, was greeted with incredulity, not least by the HCI Alliance, which only a few days before had discussed with the Treasury ways in which it could be updated. Moreover, it is evident that the Brownite Treasury hardly bothered to tell the Blairite DTI—the scheme's sponsoring Department. Even on Budget day, the DTI promoted the scheme on its website:
	"The real beauty of HCI schemes is that they have the potential to improve performance in almost every area of the organisation. As well as traditional drivers—reducing costs, increasing profitability— they can also contribute to more recent imperatives such as corporate responsibility, individual learning and workplace development."
	Even more embarrassingly for the Government, the DTI was in the process of rolling out an HCI scheme for its own staff, as was the Department for Work and Pensions, which has far more staff than the DTI. In addition, the CBI, which actively advocated the scheme for two years at the Government's behest, reacted to the change with consternation. On 30 March, Sir Digby Jones commented:
	"This flies in the face of everything the country is trying to achieve on skills. Seventy-five per cent. of people affected by this change are lower paid taxpayers. They will want to know why the Government has deprived them, and their families, of this opportunity . . . computer literacy has to be a given in a globally competitive economy."
	In addition, as we have heard, Brendan Barber of the TUC wrote directly to the Chancellor requesting an urgent rethink, as indeed did my hon. Friend the Member for Tatton (Mr. Osborne).

Stewart Hosie: The hon. Gentleman mentioned flexibility and competitiveness. In the Budget, the Chancellor said that
	"of 3.4 million unskilled jobs today, we will need only 600,000 by 2020."—[Official Report, 22 March 2006; Vol. 444, c. 292.]
	Does he agree that the scrapping of the scheme, which created flexibility and competitiveness by giving people skills, would be disastrous if we wish to create skilled labour to replace unskilled labour?

Mark Francois: I agree. The Chancellor said little about the initiative in his Budget speech but, equally, he said little about the national health service. However, he evidently tried to hide what was being done. Our role in the House is to try to expose that, and then try to persuade the Government to change their mind.
	There was adverse reaction from employers who have promoted the scheme to their employees, as the Government encouraged them to do. Andrew Unsworth, the head of e-Government at the city of Edinburgh council, which is Labour-run—at least until Thursday—sent the following e-mail this morning. [Interruption.] That would be lucky for the Labour party. Mr. Unsworth said:
	"City of Edinburgh Council has run two very popular schemes for our monthly staff since March 2005. Take-up rates were over 2000 employees, nearly 16 per cent. of those eligible.
	We were preparing to launch another scheme making computers available to our weekly and fortnightly paid staff who are predominantly on lower rates of pay. These pay groups may not otherwise be in a financial position to afford computer equipment. We viewed this as an excellent way for employees to benefit from a computer and its educational properties for both them and their families."
	He continued:
	"This scheme provided an excellent platform to improve literacy, communication skills and overall education for employees and their families. City of Edinburgh is currently introducing more computers to schools and several staff had indicated that they were participating in this scheme for the benefit of their children.
	City of Edinburgh Council have followed the HCI guidelines very closely and only included computer packages in their scheme. I would hope that the government would consider reversing its decision in this matter even if it means tightening the guideline to prevent the alleged abuse of the scheme."
	Similarly, Mike Clayton, finance director of Essex fire authority, wrote to me on the 24 March:
	"Take up for the scheme was excellent with over 1 in 5 employees joining. The level of take up was particularly high for firefighters where over 1 in 4 chose one of the computer packages available."
	Mr. Clayton amplified his point:
	"15,000 nurses took up the scheme last year. Many low paid nurses, fire officers and other key workers have access to IT for the first time because of HCI. Given the importance of computers in the lives of nearly all citizens, I hope that this proposal can be withdrawn and the take up of computers extended."

Kevan Jones: The hon. Gentleman has concentrated on the low-paid gaining access to computers, but is it not the case that higher-rate taxpayers accounted for 25 per cent. of the take-up of the scheme, even though they account for 10 per cent. of taxpayers? His arguments would be more credible if the scheme ensured that the money went to the low-paid, as people who pay a higher rate of tax can afford computers without Government assistance.

Mark Francois: We have already established—and everyone accepts— that 75 per cent. of people who benefited from the scheme were on the standard rate of income tax or lower. The hon. Gentleman wishes to raise the issue of higher rate taxpayers and may wish to know that the general secretary of the TUC made a similar suggestion. I would be interested to hear the Government's answer to that proposal and to find out whether they would be prepared to retain the scheme on that basis—

Kevan Jones: rose—

Stephen Hesford: rose—

Mark Francois: I have given way several times to the hon. Member for North Durham (Mr. Jones) and I want to make some progress. I may give way later to the hon.Member for Wirral, West (Stephen Hesford), particularly given that we greatly enjoyed his intervention on my Second Reading speech last week.
	I move on now to deal with the reaction of the IT industry, including the companies that had been created to fulfil the home computer initiative objectives by facilitating the supply of computing equipment to both public and private sector enterprises, many of which will go out of business if the provision goes through. The Government's regulatory impact assessment, which was rushed out just last week in response to the furore over this issue, admits that, exceptionally, no small firms impact test has been carried out in this instance, although that would usually be the procedure. It also notes in paragraph 62, in classic Whitehall jargon:
	"HMRC does expect there to be an impact for HCI providers. Particularly those in the small business sector that have been set up specifically to provide HCI schemes . . . will be impacted more significantly in the short term than businesses with more diversified business models".
	The IT industry body, Intellect, put it more succinctly after the Budget:
	"There are about 2,000 individuals working in this industry that Gordon Brown has just signed redundancy notices for".
	Before Ministers seek to accuse anyone of crying wolf in this matter, I have to inform the House that the programme of redundancies in the companies established to support the HCI initiative has, unfortunately, already begun. Last month, Red PC became the first company to fall victim to the abolition of the HCI when it was reported that it was about to call in the liquidators. On 24 April, another company, Encompass, announced that it was closing down. As the managing director subsequently told the press:
	"As a small company solely involved in providing HCI, I was completely knocked back by the Chancellor's decision. The government's Digital Strategy sets targets for 2008 so I thought the HCI scheme would run until then, and at the very least we would have 12 months notice. To be given 15 days is appalling."
	At a time when unemployment is unfortunately on the rise again, it will be a great shame to see further high-tech companies going into liquidation if clause 61 remains in the Bill.
	Most importantly millions of people across the country who might have been able to take advantage of the scheme to improve their and their families' IT skills are now to be denied that opportunity. The Chancellor will now disappoint them if the scheme is withdrawn. Moreover, even those on the existing scheme will be allowed to benefit from it only until whatever agreements they have reached with their employers have expired. That is confirmed by paragraph 71 of the regulatory impact assessment:
	"Changes to the exemptions for computers and mobile phones were announced in the Chancellor's Budget statement on 22 March 2006 and will take effect from 6 April 2006. However those people already participating in schemes based on the law as it applied prior to 6 April will not be affected until the period of their current agreement expires and they enter into a new agreement."
	In other words, at that point they will be caught by the changes. Even the 500,000 people who are benefiting now will not do so for much longer, once their individual agreements with their employers expire.

Stephen Hesford: rose—

Adam Afriyie: rose—

Mark Francois: I promised to give way to the hon. Member for Wirral, West and I shall keep my word.

Stephen Hesford: I am obliged to the hon. Gentleman, who has moved on to the point that I wanted to raise. The problem is his umbrella assertion that there is an HCI industry. I do not readily accept that there is such an industry that will be abolished by the legislation. I believe that the figures quoted by my right hon. Friend the Paymaster General are correct and that there has been a take-up over the last couple of years of only 4 per cent. That being the case, it is not clear what industry has supposed to have grown up over that time. The hon. Gentleman is talking about an industry that sells computers, which has been around for a long time. That industry will continue, irrespective of whether this particular legislation goes ahead. The hon. Gentleman has not taken into account the fact that the scheme will move on to a different phase, focused on provision for the elderly and the unemployed who really need these IT skills—[Interruption.]

Mark Francois: I thank the hon. Gentleman for giving way before I was tempted to intervene on him. He is trying to play games with the statistics. He said that the scheme had only a 4 per cent. take-up, but that is nonsense. I have already provided one example of an organisation that saw take-up of 16 per cent. and it has been at that level or higher for a number of organisations. The take-up among employers pushing the scheme has been very healthy and I have already argued that the scheme was about to take off with otherorganisations—[Interruption.] I have to ask Government Members who are intervening from sedentary positions why, if the scheme was so bad, both the Department of Trade and Industry and the Department for Work and Pensions were about to roll it out for their own employees. Perhaps some Government Member could stand up and answer that question. I will gladly give way to anyone prepared to do so. Silence.
	Perhaps the greatest problem in the whole sorry saga is the effect on individuals who have benefited from the scheme. I have already explained how even their benefit will be time-limited. In order to understand how they will be affected, I cite the example of one HCI provider, the company Futuremedia, which established a website to allow subscribers to provide feedback on the scheme. Here are some examples from respondents outlining the benefits that they believe the scheme confers. I have taken four representative examples. One respondent said:
	"I joined so that my twelve-year-old daughter would not be disadvantaged when it comes to homework, research and preparations for exams. To date it has proved to be money well spent."
	The next respondent said:
	"I joined because it gave me the chance to involve myself in the process of gaining new skills. This without the direct pressure of any direct work-related scheme but with help at hand and the knowledge I could work at my own pace in my own time."
	A third said:
	"I joined as I was looking for a computer for myself but couldn't afford to buy one outright; when the offer came along I decided to apply as it was a cheap and easier way of affording a new computer."
	The fourth said:
	"As a man approaching my 50th birthday I find it vital to be dragged into the 21st century learning computer skills, as more and more they become an everyday part of life."
	Those are just a few of the numerous examples of how HCI was benefiting people in exactly the way intended, allowing them to gain both IT skills and the chance to learn about other subjects online and giving access to a PC to those who could probably not otherwise afford it. All that could be lost if we do not delete clause 61.
	For all those reasons, we believe that the scheme needs to be retained not only for the UK IT industry, which could quite conceivably be harmed by the clause, or the 2,000 or so whose jobs could be lost, but for the many employees in the country who would have taken advantage of HCI in the future to help maintain Britain's competitiveness. We believe that not least because all the indications are that HCI was just beginning really to take off.
	I now move on to options to save the scheme by producing a revised system, under which it could operate alternatively in future—

Adam Afriyie: Just before my hon. Friend moves on to establishing his case for a revised scheme, does he agree that the low take-up of technology at home is not the only problem, because about 500,000 people will have to change their behaviour, which has associated costs? If it costs £50 or £100 to change the arrangements, that could well work out in the region of £25 million to £50 million in additional costs incurred by business.

Mark Francois: My hon. Friend is right. Many people entered into the arrangement in good faith, having been encouraged to do so by their employers. Indeed, they were ultimately encouraged to do so by the Government. Now, suddenly, that benefit is effectively being withdrawn, or will be once their individual contracts with their employers expire. Those people will understandably feel let down—[Interruption.]

Peter Luff: Will my hon. Friend give way?

Mark Francois: I will briefly, but then I want to outline the alternative.

Peter Luff: The Paymaster General is muttering from a sedentary position something about it being for work. My hon. Friend should be allowed to answer that point, because the Paymaster General obviously does not understand the purpose of the scheme. A DTI document published in January 2004 lists among the benefits for employees' education for their children, entertainment, e-mail and purchasing goods and services; it was clearly intended for home use. It was all about spreading understanding of computing, so I repeat that the Paymaster General obviously does not understand the purpose of the scheme.

Mark Francois: In my experience, the Paymaster General mutters a lot from a sedentary position. [Interruption.] I really think that she should go away and re-read her brief. Having heard her remarks—I shall listen, of course, to what she says in her wind-up speech—I am not certain that she realises what exactly she is abolishing.

Dawn Primarolo: On a point of order, Mrs. Heal. I have not said a dicky bird. I have been sitting in my place listening to the debate. I do not mind being criticised by the hon. Gentleman, but does he need to make things up?

Sylvia Heal: Order. That is not a point of order for the Chair. May I ask all those participating in the debate to concentrate on the matters in hand? Let us have a little calm.

Mark Francois: Those who know the Paymaster General well can judge for themselves.
	On the options to save the scheme, the Treasury has sought to justify the scrapping of the home computer initiative by citing abuse. On Second Reading the Paymaster General appeared to have no other defence of the Chancellor's ill thought-out decision than to make noises about iPods from a sedentary position. It is true that a loophole existed. A number of products that are entertainment rather than educational, and so are not exactly in the spirit of the scheme, such as MP3 players, game consoles and digital cameras, were ordered in some cases and qualified for the tax exemption because the HCI guidelines from 2004 gave only broad definitions. So there was a loophole which some people attempted to exploit.
	However, the Treasury has produced little clear evidence, even tonight, of the extent of the abuse that it claims was occurring, which we believe was only at the margins. As I pointed out in an intervention, there was little hard evidence of the abuse in the Government's own regulatory impact assessment, which they produced last week in a desperate attempt to justify the abolition of the scheme.

Michael Wills: Will the hon. Gentleman give way?

Mark Francois: In a moment.
	In any event, it would not be difficult to tighten up the rules by producing guidelines that give details about the items to which the tax exemption would not in future apply. It is very simple to do that if the intention is to combat the abuse. Throughout the Bill—

Michael Wills: Will the hon. Gentleman give way?

Mark Francois: In a minute.
	Throughout the Bill, we will debate ad nauseam all sorts of anti-avoidance proposals that the Government have introduced in the Bill—some of which are highly complex and technical—to try to prevent what the Treasury determines to be abuse. It would be simple to produce relevant guidelines; they would be less complicated than some of the measures that we will debate on real estate investment trusts and group relief. If the Treasury wanted to maintain the scheme, it could easily produce guidelines.
	There is a precedent. In Sweden, the Government have for some time operated a scheme similar to the HCI. There were similar concerns there about people seeking to exploit the tax advantages to purchase equipment outside the original spirit of spreading IT skills. However, in 2004, instead of scrapping the scheme, the Swedish Government found a workable solution, by tightening up the rules on qualifying equipment.
	For example, the rules stipulated that in future only one personal computer would be allowed per employee; some had attempted to order more than one. The monitor size of those PCs was restricted to 30 in. Peripherals and accessories were divided into two categories; those primarily used connected to a PC, such as keyboards and printers, which were allowed, and those whose primary usage did not involve a PC, such as digital cameras and MP3 players, which were specifically not allowed.
	Such restrictions would be relatively simple to introduce, were HMRC to produce a list of equipment that would continue to qualify, perhaps reinforced by another list of equipment that was specifically excluded from the scheme, such as iPods and MP3 players.

Michael Wills: Will the hon. Gentleman give way?

Mark Francois: In a minute.
	The Government cannot hide behind excuses, such as the difficulty of defining qualifying equipment, because we have just provided them with an empirical example showing how another nation tackled the problem. Moreover, the Government's own regulatory impact assessment concedes that continuing the scheme with tighter guidelines on qualifying equipment, which is characterised in the RIA as option 2, would virtually halve the estimated cost of the scheme to the taxpayer, as projected by the Treasury out to 2010–11, thus allowing the scheme to survive, retaining its key benefits at a reduced cost to the taxpayer on a more tightly defined basis. That should constitute a win-win all round. I urge the Government to take the opportunity while there is still time.

Michael Wills: Will the hon. Gentleman give way?

Mark Francois: In a moment.
	I come to an important point—the definition of "not significant", which the Paymaster General briefly addressed in her introductory remarks. If the existing exemptions are removed by clause 61, an associated issue arises; how computers provided by employers to employees will be taxed. As the RIA states at paragraph 22:
	"If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to Class 1A National Insurance contributions."
	That could lead to a significant compliance burden for employers if they are required to police the extent of private use by their employees. As the British Chambers of Commerce states in The Times today,
	"Businesses have already seen the cost of implementing government regulation rise to over £50 billion since 1998, so to introduce in the small print of the Budget another measure such as this one will further serve to burden employers and impact on their ability to compete effectively."
	The Government have responded by arguing that there will be no tax or NIC liability if such use is deemed "not significant", but have not clarified how that will be defined. If clause 61 remains part of the Bill, it is vital that that is clarified so that both employers and employees know where they stand.
	The RIA states at paragraph 73 that HMRC will
	"invite employer representatives to work with them as they develop guidance which will articulate their approach for handling compliance and administration issues that flow from the changes announced in the Budget."
	I think I heard the Paymaster General reiterate, but I will ask her to repeat beyond peradventure in her winding-up speech, that the Government are planning to consult industry so that they can clearly define "not significant" and the matter can be clarified once and for all.
	If that is the Government's intention, can the Paymaster General estimate how long the process will take? For instance, does she anticipate that it will be concluded successfully by July, as suggested in paragraph 74 of the RIA? Even better, if clause 61 were removed from the Bill, the current exemptions would remain in place and the issue would not arise. As The Times argued this morning in a leader sub-titled "The Treasury sends another nasty message to business",
	"Treasury officials have promised to take a 'practical' view of how much private use should be regarded as 'significant'. The most practical approach, when the issue is debated in the Commons today, would be to withdraw it. We are watching."
	That is another good reason for deleting clause 61.  I shall now give way to the hon. Member for North Swindon (Mr. Wills).

Michael Wills: I am extremely grateful to the hon. Gentleman for finally giving way. He has moved on from the point on which I wanted to ask him to clarify his intentions. However, I will take advantage of his generosity and ask him to be a little more specific about how he intends to define the scope of the reformed HCI, as he would regard it. Does he accept that the technology is moving so fast that it is difficult to draw the parameters? When the scheme was originally defined, it was appropriate for the technology. He acknowledges that abuses take place, although there is some disagreement about the extent. Those have come about partly as a result of changes in technology that were not conceivable. Although he has tried to provide a constructive alternative, two or three years down the line the technologies may well have moved on again. Is it not right to try and address abuse in the light of the rapid changes in technology?

Mark Francois: I thank the hon. Gentleman for conceding that we have tried to be constructive about the matter. I welcome the fact that as a former Minister in the Department of Trade and Industry, he has put that on the record. Those canny Swedes thought of that possibility, too. They realised that as technology moved on, particularly in such areas, the list would need to be reviewed regularly to make sure that the definitions remained current. It should be perfectly possible for us to do that too. We come up with an inclusive list and an exclusive list and we review them periodically—say, once a year—to make sure that the definitions remain current. That seems, to coin a phrase, not to be beyond the wit of man, or indeed woman.
	To summarise, the HCI scheme has been important in spreading computer literacy among our population, including the lower paid, in order to help our country compete in the 21st century. As such, the scheme should be retained and not effectively wound up, as the Government propose. It should be possible to devise a revised version of the home computer initiative that allows the scheme to survive for its intended purpose, while introducing safeguards to combat the alleged fraud. If the Scandinavians are able to do that, I see no reason why we could not do it as well. The situation is a good example of the old maxim, "Where there's a will, there's a way".
	The key question is whether there is a will on the part of the Government to save the scheme, or whether the Chancellor is so desperate for the £300 million in revenue which the Treasury's Red Book estimates would be raised by scrapping the HCI scheme from 2006–07 to 2008–09. Will avarice take over, and will the scheme be cancelled regardless of its obvious merits? Option 2 in the Treasury's regulatory impact assessment would allow the scheme to survive on a honed-down basis.
	If we do not hear a convincing argument from the Government tonight—I do not find the digital inclusion team convincing—we shall simply assume that the money that the Chancellor is hoping to recoup has taken precedence over all other considerations and that a financially desperate Chancellor, who loves to talk about the technological revolution and the need to promote a high skills economy, has simply taken the cash. That decision is doubly detrimental, because it will damage our ability to compete in high skills industry with the likes of China and India in the 21st century.
	I urge Ministers to draw back from that course while there is still time and to work co-operatively with other parties, industry and scheme users to save that very important scheme. I shall listen to the Paymaster General's reply with genuine interest in the hope that, onbehalf of the 500,000 scheme users and the 2,000 employees who will be directly affected, common sense may yet prevail and that that particularly bad decision by an analogue Chancellor may yet be reversed.

Rob Marris: I thank the hon. Member for Rayleigh (Mr. Francois) for his speech, a large part of which was thoughtful, although he will not be surprised to learn that I disagree with much of what he said. If clause 61 passes into law, computers provided for use at home solely for business purposes will continue to be allowed, and I shall return to that point.
	The hon. Gentleman accepts that times change. The Paymaster General has said that the take-up rate for the HCI scheme in the first four years after its introduction in 1999 was 29 per cent. and that it then fell to 4 per cent., which shows the operation of the law of diminishing returns. I know that the hon. Gentleman was not a Member of the House in 1999, but I strongly suspect that his party failed to support the HCI when it was introduced and when it was reviewed in 2003—he can correct me on that point, if I am wrong. He, along with the hon. Member for Mid-Worcestershire (Peter Luff), now supports the HCI, and the thrust of his speech seemed to be that times change and that the scheme has reached lift-off.
	It is true that times change, but we must put the matter into context, which the hon. Gentleman addressed only at the beginning and end of his speech when he discussed India, China and globalisation. He issued a challenge to the House, which I shall answer. The hon. Gentleman, and most Conservative Members in the Chamber, want to retain the HCI, because it is an attempt to upskill our society.
	The Government have spent a huge amount of taxpayers' money on trying to upskill our society, and they continue to do so. I will not reel off the figures, because we have all heard them, but Labour Members agree that that spending was certainly correct, whereas Conservative Members are somewhat divided. For example, the education maintenance allowance was piloted in my constituency, and, although I cannot prove it, I posit as cause and effect the fact that staying on rates at 16 greatly increased. That measure involved investing a lot of money in a long-term process of upskilling our economy, which is the context in which we need to understand the HCI.
	The hon. Gentleman mentioned the trade union learning fund. I served in the Committee that considered that legislation, where Conservative Members opposed it. The trade union learning fund has been very successful as part of a mosaic of measures to upskill our economy. The HCI was part of that mosaic, and the Government now say that they would rather that other things were part of it, too.
	As far as I am aware, the HCI did not cover students or pensioners, unless they happened to be in paid employment. As part of the mosaic of upskilling, the Government have been pouring computers into schools. All hon. Members visit schools in their constituencies— I am sure that you have done so in the west midlands, Mrs. Heal—where interactive white boards have been installed, many teachers have been provided with laptops, and increased numbers of computers have been made available to pupils. Indeed, some schools in Wolverhampton are successfully piloting the use of personal digital assistants—I do not know whether PDAs fall within the category of computers, because, as my hon. Friend the Member for North Swindon (Mr. Wills) has said, technology moves on so quickly.
	Shortly before the Budget, the hon. Member for Rayleigh asked about support for the scheme by the   Department for Work and Pensions and the Department of Trade and Industry. However, the Budget included a lot more money for education, and what is known in the vernacular as "Brown money" consists of money that goes directly to schools—from memory an average secondary school can receive up to £198,000 in the following financial year. It is surprising that the hon. Gentleman has suggested that the abolition of the HCI is simply an act of desperation by the Chancellor, because the Budget included far more extra money for education, which affects skills both directly and indirectly, than will be saved by the abolition of the HCI. The further education White Paper was produced at the beginning of March, and adult learning grants allow people to upskill to level 2 and under-25s to upskill to level 3. The HCI was part of that mosaic of upskilling.
	Whether Conservative Members like it or not, those taking advantage of the HCI disproportionately consisted of higher-rate taxpayers. As my hon. Friend the Member for North Durham (Mr. Jones) has pointed out, that is not the case in absolute numbers, but it is true proportionally. In round terms, higher-rate taxpayers make up about 10 per cent. of taxpayers, but they made up 25 per cent. of those who benefited from the scheme. That is not to say that we should abolish the scheme just because higher-rate taxpayers benefited disproportionately, but it is worth bearing that point in mind against the backdrop of where the Government want to go on skills provision. We must consider the HCI in that context.

Kevan Jones: Does my hon. Friend agree with the Low Pay Commission, which has pointed out that many part-time women workers would not benefit under the scheme?

Rob Marris: I did not know that, although it does not surprise me. Although the HCI had some success, times change and we must move on.
	It is unfortunate that the HCI appears to have been axed overnight rather than its withdrawal being phased over a year. It is entirely proper for the Treasury to examine whether a tax measure produces a certain effect and whether that effect could be produced through the better use of taxpayers' money. The Opposition would rightly berate any Government who introduced a measure to help with skills and who did not change it for years and years rather than keeping it under review to see whether it worked, whether behaviour changed as a consequence of it and whether they should put taxpayers' money into something else.

Peter Luff: I am grateful to the hon. Gentleman, who is a colleague on the Trade and Industry Committee. On the abolition of the scheme, I would not be so angry if a year's notice had been given on the intention to ban the scheme, which would have been the right way to proceed. The Paymaster General must address why the change is so sudden, because the matter could have been handled much more elegantly and effectively and with less serious consequences for the employees who risk losing their jobs.

Rob Marris: I am sure that the Paymaster General will address that issue later, if she catches your eye, Mrs. Heal. I believe that the hon. Gentleman has a constituency interest in the matter, for which he is rightly fighting. In terms of the economy as a whole, however, we must consider whether, for example, fewer computers will be purchased because of the abolition of the initiative. I do not know the answer to that, but I suspect that many fewer computers will be bought. While, sadly, there may be the P45s to which the hon. Gentleman referred in his constituency, in terms of the economy as a whole more people may be employed in outlets such as Dixon's, which is going to call itself Curry's, or wherever, selling computers to people direct instead of their being refracted through their employers. I do not know the research on that, and I do not know whether the Treasury does.
	The hon. Member for Rayleigh mentioned what was said in The Times, and probably in other newspapers, about the idea, which I am sure that the Government do not have, of taxing personal e-mails. I would draw an analogy with company cars. I am sure that the House has spent a lot of time over the years discussing the taxation of company cars. The matter has come to rest in the past few years because, as a House and as a society, we have reached a modus vivendi and a balance as to how much company cars should be taxed. In most cases, company cars are used for business purposes as well as domestically. A car is an expensive piece of kit. Why have a car that one uses at work, and that one then has to park at work, or, if one can prove that there is no secure parking at work, drive home and leave there? When one then went to the supermarket, one had to go in a different car that one had bought oneself. We all recognised that that was a bit silly.
	The taxation of part of the value of company cars is done on a fairly rough and ready basis. People do not go round saying, "How many miles have you driven?" There used to be banding. I think that there still is—I do not have a company car any more—but they are pretty broad bands. One does not have to clock every mile as regards whether it is business and personal. There is a contradistinction between the cost of enforcing something and simply getting in some tax while not spending too much on enforcement.
	Perhaps we can have a similarly rough and ready approach to computers provided by employers for business use at people's homes by assuming that, say, 75 per cent. is business use as against 25 per cent. that is personal use. Otherwise, we could go on and on, ad infinitum, with the taxpayer subsidising computers at home for people's private use, which was a measure to kick-start IT literacy and competency in 1999. That may be the route that Sweden is taking, and good luck to it if it does.
	The Government are absolutely right to set the Bill in the context of the mosaic of upskilling measures for our economy, and absolutely right to review it, but I wish that they had given it a little more time instead of doing it overnight.

Julia Goldsworthy: I welcome the announcement of a dedicated digital inclusion team and hope that it will really tackle exclusion issues. Will the entirety of the £370 million in savings that the abolition of the scheme will generate be transferred into that, or will some go into the Treasury pot?
	If the clause remains in the Bill, it will signal the end of a very successful scheme that has helped 500,000 people, more than 75 per cent. of whom were in the lower-income tax brackets. Those people gained access to computers at home, not only for them but for their families. Siemens told us that its participation rate is more than 35 per cent.
	Can the Paymaster General tell us more about how the decision to end the scheme was made? I understand that it was made a matter of hours before the Budget with very little consultation with the Department of Trade and Industry. The explanatory notes give this reason for the decision:
	"There is also evidence to suggest that the exemption has been applied beyond the scope of its original intention. Some HCI providers have offered packages that include games consoles and MP3 players and allow employees to buy equipment through salary sacrifice arrangements rather than borrow it".
	Will the Paymaster General not only write to the hon. Member for Mid-Worcestershire (Peter Luff) with that evidence but place it in the Library so that all Members can have access to it?
	The Government claim that there are fundamental problems in two key areas, yet neither need be terminal for the scheme. All that is needed is clearer definition of the existing regulation. The Government would be more believable if, when they gave their reasons, they accompanied them with the hard evidence which, as yet, we have not seen.
	The first problem is that of the definition of a computer, which in the original regulation is defined as "computer and peripheral equipment". There is a precedent in terms of how that has been resolved in other countries. Sweden tightened up its definitions of "eligible equipment" and "ineligible equipment", and made it clear that only one computer per household would be eligible. It might be worth paying attention to another Scandinavian precedent—that of Denmark, which cancelled the scheme but brought it back a year later. The Government might be forced to eat their words in future. There are ways of coming up with a series of workable definitions that continue to bring benefits to employees and their families. It should not merely be a case of robbing Peter to pay Paul in order to improve inclusion in other deprived groups.
	On the wider issue of salary sacrifice, I understand from the HCI Alliance that the Office of Fair Trading has to approve every single hire agreement that goes through the scheme, so that if a claim fell outside the terms of the scheme, it would not qualify for the exemption. If the Government were able to provide evidence of such abuse, that would help clarify the situation. Certainly, the HCI Alliance has no evidence that it was being abused in that way or beyond the definitions of the regulation.
	Withdrawal of the scheme will create a massive compliance problem for employees and employers. The regulatory impact assessment is very helpful. It explains that if the exemption is removed, all employees are technically required to log the time that they spend at home on their work computer using it for leisure purposes, such as checking e-mails or playing computer games, because it will be taxable. The removal of the scheme will create further confusion, not remove it.
	Paragraph 18 of the RIA states:
	"Where employers and their employees enter into new agreements to loan computer equipment for private use on or after 6 April, the employee will be liable to pay tax on the cash equivalent of the benefit in kind. Employers will be liable to class 1A NICs on the same amount."
	The RIA goes on to say in paragraph 22:
	"Some employees may be provided with computer equipment or mobile telephones solely for business use. In this situation as long as any private use that it is made of the equipment is not significant there will be no liability to tax. If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to class 1A National Insurance contributions."
	I will be grateful if the Paymaster General can explain what "significant" means and how employers are planning to fill out their tax returns.

Stewart Hosie: How does the hon. Lady understand the following example? If an employee has a computer for business use and learns to use a new computer package or software development tool that is not directly related to the work that they do but is in line with what the company does, does that count as personal or business use?

Julia Goldsworthy: I am sure that the hon. Gentleman could have an interesting discussion about that with the taxman.

Dawn Primarolo: I can help the hon. Lady on this point. It may be confused in her mind, but it is not confused in employers' minds. The interpretation of what is significant use was in operation before 1999, when the exemption came in, and employers managed to operate it perfectly well. I have said to the Committee that I am happy to ensure that that is restated in that way. Employers have used it before and knew what it meant, and it will not be an intellectual challenge for them.

Julia Goldsworthy: I hope that employees feel the same way as employers.
	Another major problem is the way in which the scheme has been axed with no warning. That has had a negative impact on a variety of businesses. Last week, Meriden announced profit warnings, which are partly due to its significant involvement with the HCI scheme.
	On a smaller scale, I was contacted by a business called BizApp, which is based in Cheltenham and was expressly set up to help smaller businesses access the scheme. It now faces the loss of six jobs. It established its business because it identified precisely the same problem about which the Government are now talking: it is difficult for smaller businesses to access the scheme. It found a solution, by automating the process and providing the three-year warranty and support package that so many people found attractive and that small businesses could manage to administer. It wrote:
	"We became involved in HCI in 2004 and realised very quickly it was impossible for the industry to bring HCI to the Small to Medium Business Sector because the process was still too complex . . . We therefore developed an online platform which automated the whole process. This was no easy task because it was necessary to ensure that all the relevant legislation was adhered to and the platform allowed resellers who use our platform to make substantial savings over the manual methods."
	The company was therefore clear that it had identified a problem and found a way in which to overcome it. However, it now faces making its staff redundant because the Government claim that there is insufficient participation from those on lower incomes and more deprived sectors. It is illogical that it cannot now participate in the process of helping people access the scheme.
	It is disturbing that the Government have taken so long to provide any indication of the mechanisms on which they will focus their resources. It is interesting that option 2 was rejected because it did not help people from deprived backgrounds. Option 3 announces all the savings and gives no idea of how the Government would target support. That is important because many businesses have invested in and built up infrastructure to provide the HCI. They could use their expertise and investment to provide the scheme to people from more deprived backgrounds, yet all elements of certainty for their business have been taken away. That will have an impact on their confidence to invest in any future scheme and future Government proposals.

Kevan Jones: I have been listening carefully to the hon. Lady. How will low paid workers, the unemployed or the elderly, to whom my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) referred earlier, benefit from the scheme?

Julia Goldsworthy: I can give the hon. Gentleman a precise example of someone to whom I spoke this morning and who is using the HCI to buy a computer for his mother, who is a pensioner. The whole point of the HCI was to bring computers into private use and encourage their use in the home. Why, therefore, has the Paymaster General rejected modifying the scheme to ensure that the abuses that she mentioned do not take place?

Peter Luff: For the second time in the debate, the Paymaster General indicates that she does not understand the purpose of the scheme that she is abolishing. She shook her head in dismay at the example that the hon. Lady provided, when, according to the Department of Trade and Industry document, which was produced jointly with the Department for Education and Skills and other Departments, that is exactly the sort of purpose for which the scheme was established. It was to take computers into homes, not for business purposes. The Paymaster General clearly does not understand that point.

Julia Goldsworthy: The hon. Gentleman makes a good point. The scheme was an initiative to bring computers into the home. Why, therefore, did the Paymaster General reject option 2 and why was the new scheme announced only today? I hope that she will reply in her winding-up speech.

Michael Wills: I welcome today's announcement by the Government of the digital inclusion team. It is welcome not least because it focuses on the overriding objective of ensuring that all those who are potentially excluded from the benefits of access—everyone who has spoken said that such access was essential—to fast-changing new technologies remain the priority. The emphasis will be on them, not some specific scheme, which, I accept, was relevant when it was introduced and was, incidentally, opposed by Opposition parties at the time. We should focus on the ends, not the means. I therefore greatly welcome the digital inclusion team but I want to ask for reassurance about two matters.
	First, my right hon. Friend the Paymaster General spoke generally about those who are potentially excluded from the new technologies. I should be grateful for an assurance that one of the key focuses of the new digital inclusion team will be lower paid workers, especially those on the national minimum wage for whom access to new technologies could be crucial to help them upskill and move up the employment ladder, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) rightly stressed.
	The second point is more technical. My right hon. Friend referred to digital television. Of course, that could be enormously important. We are about to move to a switchover from analogue to digital television and that will clearly be important in many different ways. However, I hope that she will reassure me that she will not ask the digital inclusion team to rely on digital television as the main passport to literacy in the new technologies. It is important to bear in mind that there will be a plethora of ways in which to access the new technologies and that the computer is likely to remain important for most people, if not everybody, in that regard. I should therefore be grateful for some reassurance on those points.

Peter Luff: Although you rightly rebuked us, Mrs. Heal, for getting a little excitable earlier in the debate, I know the Paymaster General well enough to realise that she will not take it personally. In that spirit, I join my hon. Friend the Member for Rayleigh (Mr. Francois) in wishing her an extremely happy birthday. I am sorry that she has to pass it here.
	I have two separate concerns. First, was the scheme a good thing—yes or no? A related question is whether it could have been improved. Secondly, was the manner in which it was abolished satisfactory? Although my colleague on the Committee, the hon. Member for Wolverhampton, South-West (Rob Marris), said that I spoke from constituency interest, as Chairman of the Select Committee on Trade and Industry, I am also worried about the impact of the scheme on the Government's strategy for bridging the digital divide to build new societies. The scheme was originally believed to have played an important part in the process. I freely declare my constituency concern, but I also have a genuine anxiety about the broader issues that precipitate change in Government policy raises.
	The scheme's demise deserves a tribute along the lines of Mark Antony's celebrated speech in "Julius Caesar":
	"Friends, Romans, countrymen, lend me your ears;
	I come to bury Caesar, not to praise him.
	The evil that men do lives after them,
	The good is oft interred with their bones".
	I come to praise the home computing initiative, not to bury it—the Chancellor has done that. The good that the scheme has done lives on. The computers are in homes and much good has been done. The scheme has made a contribution to fulfilling the Government's key objectives of improving IT skills and productivity and increasing access to the internet in UK homes.
	I repeat that the Paymaster General made several sedentary comments earlier that suggest that she does not understand the purpose of the scheme. It was not a business scheme but was provided by businesses to their employees for personal use. That was what made it so strong, successful and important. I hope that she has now understood that. The scheme was not for business use of computers at home.

Stewart Hosie: The hon. Gentleman has made that point a few times during the debate. On 24 April, the Paymaster General said:
	"With effect from 6 April, a tax charge will arise on computer equipment made available by employers to their employees for private use."—[Official Report, 24 April 2006; Vol. 445, c. 461.]
	Perhaps she understood the point on 24 April but does not understand it today.

Peter Luff: That is a helpful intervention, which speaks for itself.
	The scheme was universally approved by the outside world, including all the stakeholders—to use the Government's word. Although consensus is normally a cause for some concern, it is occasionally right. Those who provided the equipment, those who used it, the trade unions, the CBI—indeed, everyone—believed that the scheme was good and an excellent example of an effective Government-private partnership.
	Alas, the evil that the Chancellor has done by abolishing the excellent scheme will live on. Jobs will be lost. There is an HCI industry and companies had invested large sums of money in developing marketing initiatives, in the expectation that it would run for at least an extra two years. One of the questions that I tabled to the Chancellor, to which I have received no reply after more than a month, asked why it has been abolished sooner than anticipated. Large amounts of investment were made on the back of an assurance that the scheme was important and that the Government were committed to it.

Stephen Hesford: I am interested in the hon. Gentleman's argument that an HCI industry exists. Is he arguing for a state subsidy for that industry?

Peter Luff: No, not at all. The hon. Gentleman does not understand how much money the industry has had to invest to make this scheme work. After the debate, Iwill happily show him the Government's own documentation on how employers and employees should implement the scheme. It is very complicated and difficult; it is not straightforward. The Department for Work and Pensions had a significant sized team of officials working on how it should be implemented, but that scheme has now been abolished, when it was on the point of succeeding.
	As I said, the scheme was difficult and complicated. It did not work in 1999, and it was effectively rebooted in 2003 and relaunched in 2004. It is just beginning to have an impact now, which is what makes this precipitate decision so unfortunate. Evesham Technology will survive this body blow, but income from the scheme represents a quarter of its turnover. About £1.5 million a month will disappear overnight.
	I was going to make this point to the Paymaster General later, but I have been drawn into making it now. I am about to be nice to her, so I hope that she will listen. No? I will not hold my breath. I might come back to the point later when she can hear. I was about to express my great gratitude to her for the way in which she reacted so diligently—

Dawn Primarolo: I can assure the hon. Gentleman that I was not speaking when he accused me of doing so. I am listening to him, but I do not need to look him in the eye to hear what he is saying.

Peter Luff: I am sorry. I thought that the right hon. Lady was reading something.
	I am genuinely grateful to the Paymaster General for the way in which she responded to the concern about the impact of the Office of Fair Trading's involvement in the initiative. She was magnificent. She now looks slightly puzzled. Each and every scheme approved under the initiative had to go to the OFT because it technically breached the terms of the Consumer Credit Act 1974. There was huge backlog of cases, and if the scheme had been abolished overnight—as was originally intended—many thousands of computers that had been earmarked for consumers would have been lost. Now, Evesham Technology will have four more months' turnover at £1.5 million a month, so the Paymaster General's action—for which I had to fight hard with her and the OFT—was really appreciated. She has enabled companies such as Evesham Technology to plan for the future, instead of being dumped in it very suddenly. I am genuinely grateful to her for that.
	However, a very worrying evil has been done. There is no doubt that those involved in the IT sector—often big multinational companies, not just small ones—have been shocked by the precipitate way in which this Government strategy has suddenly been torn up. I can tell the Paymaster General with absolute certainty that this will reduce industry support for working with the Government on such schemes. The industry will not be prepared to commit management resources and expense to such projects if the Government are suddenly to decide to throw them out.
	Sadly, I am not allowed to name the company involved in the scheme, but I can tell the Paymaster General that one multinational IT company that had earmarked a multi-million pound investment for an education IT partnership in this country has now decided to abandon it and to move to another of our European Union competitors. I shall call it a competitor for the purposes of this argument. So the abolition of the scheme has already had the effect of shifting the support of major multinational players away from this country. The manner in which the Government have abolished the scheme is having a serious impact. I am particularly sad that no replacement schemes have been identified or funded, and I am really worried that we will lose the infrastructure to deliver any future schemes that the Government might introduce.

Mark Francois: My hon. Friend is making an extremely important point. When companies, especially large multinationals, consider making investment decisions, they look at a whole range of factors. One of the most important is confidence in the continuity of the tax regime in the jurisdiction in which they plan to invest. Decisions such as this are therefore injurious, in that they will damage that confidence and have a long-term knock-on effect on investment in this country. Would my hon. Friend like to amplify that point a little more, because of its importance?

Peter Luff: I have talked to many representatives of   the Home Computing Initiative Alliance, and they have all expressed their deep concern about the Government's intentions, not just on taxation but on all the initiatives related to home computing. Which of the initiatives will endure? Which will be torn up without warning at the eleventh hour, leaving the massive investment and effort made by the companies worthless and in tatters? This is a serious issue.

Michael Wills: Will the hon. Gentleman clarify the point raised by the hon. Member for Rayleigh (Mr. Francois) about the importance of stability in fiscal regimes? That was a good point, but does it mean that the Conservatives have now abandoned their plans for a flat rate of tax?

Peter Luff: I am not going to speculate on the tax policies drawn up by my Front-Bench colleagues. I do not have any knowledge whatever of them. We all believe that tax policies should change and evolve over time; that is not in dispute. If the Government had made a good case for the abolition of the HCI, I would have accepted its abolition. However, they did not, and they have abolished the scheme in the worst possible way. That is the problem. If only they had taken a bit more time and care over its abolition, we might not be having this debate tonight.
	I remind the Paymaster General that, on 19 January 2004, the then Secretary of State for Trade and Industry—now the Health Secretary—said at the relaunch of the scheme:
	"For individuals—as well as cost savings—HCI schemes can help realise personal and professional potential. Through improved ICT access and use, they provide the tools and resources which further individual learning, enhance workplace skills and increase employment opportunities."
	In January this year, on the second anniversary of the scheme, the Minister for Industry and the Regions said that the
	"HCI provides a great example of what can be done when the government and industry are working together to fulfil policy objectives".
	On 13 March, he repeated that praise in The Times, in a supplement on the HCI, when he stated:
	"Since 2003, our home computing scheme has promoted the Government's aim of widening the ownership and use of computers at home, while helping our aim of bridging the digital divide."
	As the Paymaster General knows, the DTI offered the scheme to its own staff for the first time on 15 March this year. It was still encouraging its staff to take up the scheme even on the very day of the Budget. It came as a total surprise to the Secretary of State for Trade and Industry that it was to be abolished. That is a matter of public record.
	The most extraordinary quote of all comes from the Chancellor of the Exchequer in his 1999 Budget:
	"Inequality in computer learning today will mean inequality in earning power tomorrow, so to bring more computers into more British homes, we will legislate so that employees will be able to secure computers on loan from their companies as a tax-free benefit . . . In the new economy, the more individual talent we nurture, the more economic growth we will achieve."—[Official Report, 9 March 1999; Vol. 327, c. 180.]
	Yet at the precise moment at which that ambition was beginning to be fulfilled, the scheme was abolished.
	The reasons that the Paymaster General gave earlier for abolishing the scheme do not bear even the most cursory critical examination. The job has not been done. She made derisory comments about a 4 per cent. increase in the number of people taking up that initiative, but that is 1 million households by my reckoning. If we are to be internationally competitive, we have a long way to go to increase the penetration of computers in households.
	I was particularly disturbed by the Paymaster General's comments on the abuse of the scheme. Of course, everything that we do is abused. The VAT system is abused, and I expect that many hon. Members would love to see it abolished, but I doubt that that   would be the response to its abuse. Instead, the response would be to close the loopholes and to police the system more effectively. That should have been the Government's response to abuse of the HCI scheme. If there was significant abuse—which I genuinely doubt—the response should have been to close the loopholes. Indeed, the industry is bursting with ideas on how to close every possible loophole.
	As I said earlier, I take particular exception to the Paymaster General's suggestion that Evesham Technology was abusing the scheme by marketing other products. Some of those products were specifically allowed under the scheme. Her Majesty's Revenue and Customs kept the terms vague because it said that it wanted to allow room for emerging technology. Actually, the industry would have liked the terms to be tighter, to avoid any possible abuse. Also, as good entrepreneurs, representatives of the industry offered other products outside the scheme at full market cost in their brochures. They were trying to sell more kit. That is a natural reaction for enterprise. HMRC made the fatal error—a tragic misunderstanding that further undermines my confidence in it—of thinking that those products were being offered as part of the scheme. They were not; they were add-ons that were not included in the scheme's terms. I accept that there is bound to be a modest amount of abuse, but I fear that the abuse that the Paymaster General has referred to will turn out either to have been very modest indeed or to have involved a complete misunderstanding of what was actually going on.
	I completely reject the idea that the scheme was not properly focused, because 375,000 lower-paid workers have already benefited from it. All the signs were that, as the scheme extended down into the small and medium-sized businesses, more and more lower-paid workers would benefit. It is no good the Paymaster General shaking her head in disbelief: that is what the evidence showed. It is quite clear that that was beginning to happen.
	The TUC expressed its strong support for the scheme. Brendan Barber stated:
	"The Home Computing Initiative has helped thousands of low paid workers without confident IT skills buy their first ever computer. Unions up and down the country have been promoting the scheme, often linked to training schemes. The sudden closure of the scheme would mean that many hours of voluntary union effort would go to waste."
	I am not sure whether that was the quote that my hon. Friend the Member for Rayleigh cited earlier. I do not think that it was.
	As for suggestions that higher rate taxpayers particularly benefited, I note that the foreword to the information and guidelines booklet referred to developing,
	"a broader skills base for all employees",
	not just lower-paid ones. The Government were not focusing on those workers then, and they boasted about the greater benefit that higher rate taxpayers would get from the scheme— the combined taxation benefits meant that the price of a computer fell by 41 per cent. for those higher rate taxpayers compared with a 33 per cent. discount for basic rate taxpayers. An advantage that the Government were trumpeting then is now suddenly a reason for abolishing the scheme.
	We all know that the sole reason for the removal of the scheme is that the Chancellor wanted to save some money at the eleventh hour. That is the only explanation for the fact that the proposal was put in the Budget at the last minute, without any of his colleagues in Whitehall even knowing that it was being considered. That is what makes it so sad. Although I was interested to hear what the Paymaster General had to say in her opening speech, she sounded more like the Secretary of State for Trade and Industry than the Paymaster General. We need to know where responsibility for delivering the Government's digital strategy resides. I wrote to the Prime Minister, following an unsatisfactory exchange in Prime Minister's questions last week, to ask him whether that responsibility now lies with:
	"The Chancellor, who did not understand the very serious consequences of his precipitate actions, or the Trade and Industry Secretary, who had only just offered this excellent scheme to his own departmental staff?"
	Such crucial policy cannot be made on the hoof in response to bad Budget decisions, but that is what we have seen tonight, and that is why I am so concerned.
	I could go on at great length, but other Members wish to speak and we wish to hear the Paymaster General's response. I know that I have sounded excitable and angry at times; that is because I am angry about the way in which the scheme has been abolished. It was delivering the Government's objectives and I resent the way in which they are rewriting history to say that it was not. The method of its abolition was handled appallingly, causing maximum possible despair and despondency in the industry and destroying the vital bond of trust that should exist between Government and the private sector in this important area of policy.
	I had hoped, with more time, to list ways in which the scheme could have been improved, all of which have been suggested by the industry, which was discussing them with HMRC officials a few days before the Budget—only a few days before the scheme was abolished. That is what I find utterly extraordinary. Not even HMRC had the slightest idea that the Chancellor was planning to abolish the scheme. It was a last-minute decision, and I plead with the Paymaster General for it to be reconsidered. At least the scheme should be given an extra year for an orderly phase-down while satisfactory alternatives are put in place.

Kevan Jones: I agree with the aspiration of the hon. Member for Rayleigh (Mr. Francois) for wide use of computers in homes across the country. Members on both side of the Committee would agree with that. Part of my constituency is in South Stanley, which is in the top 10 most deprived wards in the country and has one of the lowest uptakes of IT skills, and I doubt whether many of my constituents in that area have benefited from the HCI scheme.
	My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made the point that the Opposition have portrayed this scheme as the only one put forward by the Government to extend computer literacy and the availability of computers in communities. In my constituency, putting money into education is doing more to increase the use of computers and computer skills, and the Chancellor gave extra money to education in the last Budget. In every school that I visit, I see not only laptops being used by teachers but interactive whiteboards and young people using IT skills in a way that could only be imagined a few years ago.
	I referred earlier to the trade union movement, which, I understand, the Conservatives now support. I get confused about their position from day to day. One thing that has led to improved IT skills in many workplaces is the trade union learning fund, which has been consistently opposed by the Conservative party. I look forward to its support in future for that vital initiative, which has brought learning into many workplaces and reached some of the lowest-paid in society. In addition, Durham has a new further education college, with funding for IT from the Government. I reiterate that the Government have not just been tackling lack of IT skills and computer equipment in communities through the HCI scheme but through, as my hon. Friend the Member for Wolverhampton, South-West said, a mosaic of measures.
	That is demonstrated by a good initiative in the South Stanley school of technology run by Janet Bridges, the head teacher. That initiative is not just about enabling students to pay for computers; it is giving computers to 300 children, and is paid for by the Government's neighbourhood renewal funding. In those communities, that is the only way in which some children would get direct access to computers at home. Rather than spawning a private industry, it has already allowed local people to create infrastructure and support. Although the HCI scheme has been successful in some parts, it will not reach the hard core of people in poor communities, such as those that I represent, who will not get access to computers without such funding. That is why I support funding being directed to those areas.
	I have heard some criticism of the way in which the scheme has been wound up, and the hon. Member for Mid-Worcestershire (Peter Luff) made his points well. I find it strange, however, that the Conservatives and Liberal Democrats are now arguing that this type of scheme, of which the late lamented J. K. Galbraith would have been proud, reflects a kind of Keynesian view that money should be put forward to support the computer industry, which, as we know, is a poor and dying sector of our economy. I am sorry, but that is not what it is meant to do. It is meant to direct resources to and ensure skills in some of the poorest communities. That more targeted approach, which the Government are adopting, will bear fruit. In my constituency, I will support that direct help to low-paid, elderly and unemployed people, who need access to computers and skills not just in the home but in village halls and libraries

Peter Luff: The hon. Gentleman is making an important point—of course we want lower-paid people to get access to information technology. To make maximum use of that, however, it must be in their homes. There is no point having open access schemes in public places where people will be reluctant to enter private and confidential data. In relation to the success of the Government's e-initiative, people will not fill out an income tax return online in a public place or do anything confidential where they cannot secure data, and families will not get the benefit. If low-paid people are to benefit most effectively, computers must be in their homes.

Kevan Jones: I take the hon. Gentleman's point. Unfortunately, however, I, unlike the hon. Member for Falmouth and Camborne (Julia Goldsworthy) who referred to her elderly or low-paid constituent whose rich relative purchased a computer, do not have many constituents for whom that is the case. In schools, hardware is being given to kids because that is the only way that they will get access to computers in the home. I do not disagree with the hon. Gentleman's points, but he must recognise that many low-paid workers, unemployed and elderly people will not be able to purchase the equipment. I would be radical and say that in some cases we should give the equipment free to certain user groups, as it will end up certainly saving them money and also saving the Exchequer money in relation to the accessing of certain services. I would welcome support for that initiative from the Conservative Front Bench.
	As other Members have pointed out, the scheme has been successful in allowing certain sections of the community to access computers. That is good, but we now need to ensure that we direct money and resources to those who will never get access to computer equipment or IT skills unless we do such targeting.

Brooks Newmark: This year, the Chancellor presented a Budget for Britain's future, a Budget which will supposedly equip this country for the increasing challenges of global competitiveness. Unfortunately, clause 61 will do anything but that. The foreword to the HCI guidelines published in 2004 had no hesitation in stating that the scheme was an extremely powerful catalyst for an organisation that wants to exploit the clear and indisputable link between individual learning, workplace productivity and overall competitiveness.
	The then Secretary of State for Trade and Industry, now the Secretary of State for Health, has fallen on hard times since the heady days when she was able to add her signature to a statement, alongside those of the director general of the CBI and the general secretary of the TUC. If only the Royal College of Nursing were as co-operative. The strength of Government support was also indicated by the fact that the guidelines were issued by three Departments: the Department of Trade and Industry, the Cabinet Office and the Department for Education and Skills, with—I stress the word "with"—the backing of the Treasury.
	Sadly, Members have not been surprised by the lack of consultation before the scrapping of the HCI, but the contrast between the close co-operation of 2004 and the chaos of 2006 is particularly stark. No longer is there joint authorship; the DTI itself was busy investing thousands of pounds in a scheme for its own staff, unaware that just across the road in the Treasury, Ministers were planning to axe the very same scheme.
	We should also contrast the flamboyantly named Office of the e-Envoy, which existed until 2004, with thepresent e-Government Unit. The first had a responsibility to get the nation online, and, with the HCI, piloted a project that actually worked. Its successor focuses on
	"delivering and transforming public services through information technology."
	We now have the paradox of a Government investing in online services—an example is the £340 million spent by Her Majesty's Revenue and Customs on expanding electronic tax returns—while simultaneously cutting spending on a project that has successfully delivered on its promise to increase the uptake of personal computers by low-paid workers. There is a delightful irony here, which I know many of my hon. Friends will appreciate: in the long litany of disasters that have come about because of Government investment in IT projects there is one notable success, and it is being cancelled. Perhaps the Government will consider applying some of the £71 million compensation which has been paid as a result of the tax credits IT fiasco to the continuation of the HCI scheme. The subsidising of a success by a disaster would be a rather neat compromise.
	On Second Reading, the Chief Secretary reminded the House that
	"times have changed and are changing rapidly".—[Official Report, 24 April 2006; Vol. 445, c. 368.]
	Indeed they are, but they are not changing so rapidly that they excuse the total absence of consultation on the end of the HCI. The hon. Member for Wolverhampton, South-West (Rob Marris) was also helpful when he said that this issue
	"seems to have become a big deal".—[Official Report, 24 April 2006; Vol. 445, c. 410.]
	I am sure that my constituent Mr. Jon Emin is grateful for that sage pronouncement. I should add, however, that the hon. Gentleman made some thoughtful suggestions in his speech today.
	Mr. Emin is the director of a company which, over the past few years, has been working to deliver the NCI scheme to the NHS. To date, he has helped to provide some of the 15,000 personal computers for nurses. He wrote to me that the HCI was
	"one of the few good things that this current Government"
	have achieved. He continued:
	"There are still millions of low paid workers—in smaller organisations which are now finally being reached by the HCI administrators—yet to take advantage of this scheme, not to mention all the nurses, council workers and teachers who have not yet been given the opportunity to take part.
	Is this fair? We think not.
	The Government claim that it's trying to help UK Plc become more IT literate, but this clearly goes against that claim."
	My constituent enclosed a copy of a letter that he had received from the director of finance at the Public and Commercial Services Union. It stated:
	"We were about to introduce the scheme to our staff and have over the last few months undertaken a considerable amount of work to get the scheme off the ground. Both PCS and its employees are therefore extremely disappointed"
	that the Government intend to end the scheme. As I am sure the Paymaster General will tell us, taxpayers are often "extremely disappointed" by Budget measures that leave them worse off, but the Government have given no explanation for their decision, and there is a sense that the Chancellor may have believed that no one would notice clause 61.
	Let me now deal with the question of definitions in amendments Nos. 2 and 17. On Second Reading, the Paymaster General gleefully challenged my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) on what definition of computer equipment should be applied for the purposes of the scheme. She should have been a little less triumphant. In the Standing Committee that considered the 2004 Finance Bill, my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) asked her
	"to clarify what is included as eligible equipment."
	That was two years ago. If the Paymaster General had given an answer in 2004, she might have been able to prevent the two years of abuse—[Hon. Members: "Alleged abuse!"]—alleged abuse—that the Government are using as a justification for axing the HCI. Instead, she said that the Office of the e-Envoy
	"will be monitoring take-up in the coming months. That information will demonstrate to us whether the £500 is reasonable, what type of equipment is being purchased and how wide take-up is."—[Official Report, Standing Committee A, 18 May 2004; c. 216–8.]
	It is sad, therefore, that the Office of the e-Envoy was itself axed along with whatever evidence of abuse it may have found. The Government should have provided a definition of computer equipment back in 1999, and certainly when Ministers were pressed for one in 2004. A definition must be open to regular review.
	iPods have been mentioned with some derision in debates, but the average iPod now has more memory than the average home computer did when the scheme was initiated in 1999. Furthermore, podcasting is increasingly being used as a business tool. That is why amendment No. 2 emphasises the need for industry and user consultation, with the aim of arriving at a workable, flexible definition that is not open to abuse.
	The notion that people have been buying games consoles and iPods is as yet unproved, but I was interested to learn that "entertainment" was among the list of benefits that the DTI believed to stem from home computer ownership. It was mentioned in its 2004 guidelines, along with education, e-mail and e-government, as my hon. Friend the Member for Mid-Worcestershire (Peter Luff) pointed out earlier.
	It seems always to have been envisaged that
	"most new computers support the latest video game, DVDs and other popular multimedia formats."
	Why the Government's new-found technological puritanism?
	Before I end my speech, I want to refer to the lack of evidence and the solution proffered by amendment No. 18. In 2004, the Paymaster General said:
	"Since the exemption was introduced, we have not had exact figures on the take-up for obvious deregulatory reasons."—[Official Report, Standing Committee A, 18 May 2004; c. 217.]
	Conservative Members are all in favour of deregulation, but it is unfortunate that this single example of obvious deregulation should have had the inadvertent effect of undermining a successful IT initiative.
	The Minister for Industry and the Regions, the right hon. Member for Cardiff, South and Penarth (Alun Michael), admitted in a recent parliamentary answer:
	"I am unable to provide a statistical breakdown of how many individuals have participated in the Home Computing Initiative Scheme in each year since 1999, broken down or by region."
	Instead, he said only that
	"A recent estimation provided by the HCI Alliance (BT, Intel and Microsoft) indicates that over 500,000 units have been loaned under the Home Computer Initiative Scheme since 1999."—[Official Report, 25 April 2006; Vol. 445, c. 989W.]
	The Government's evidence base for axing the HCI seems to have been provided by the very organisation that is lobbying for its continuation. That is an absurdity. Perhaps the Minister will tell us where is the evidence, where was the consultation, and where is the need to scrap an IT project that has helped the lowest-paid people to improve their skills and prospects.

David Gauke: I want to make four brief points about the proposal to abolish the HCI, which is perhaps symptomatic of the Government's approach to many forms of taxation.
	First, I want to echo the point made forcefully by my hon. Friend the Member for Mid-Worcestershire (Peter Luff), in what I thought was an excellent speech, about the uncertainty created by constant tinkering with taxation regimes. If incentives are introduced, expanded five years later and abolished two years after that, there will always be the difficulty of businesses not being confident that they are working in a stable environment. Such a situation can impact on research and development, for example; indeed, it has had a considerable impact on productivity. This Government, and particularly this Chancellor, have a tendency to meddle and to tinker, and this is an example.
	My next two points relate to the taxation of employees and employers in respect of home computers—an issue raised by my hon. Friend the Member for Rayleigh (Mr. Francois)—which are treated as a benefit in kind. One consequence of abolishing the HCI is that the question again arises of how home computers are treated. They will not be considered as a benefit in kind where their personal use is not significant, and guidance will be provided on this issue. However, businesses will obviously have to police such usage carefully. They will have to issue guidance themselves and monitor employees to ensure that computers are not used for personal purposes. However, most work computers are to some extent used for personal purposes. I suspect that most people occasionally use computers at work for personal matters and for sending personal e-mails—that is what happens in the real world—and the same applies to the use of home computers. Of course, people are supposed to use computers to complete their tax returns, but that, too, is personal use. So the clause will impose a significant bureaucratic burden on business, which is often another consequence of Government policies.
	As I said, the Government are going to introduce guidance, and I suspect that there will be a generous and fairly broad definition of what constitutes insignificant use. I am slightly worried, however, at the prospect of the law saying one thing and the guidance saying another—it is saying that people need not worry. My fear is that, instead of having a tightly defined law that people should obey, we will have a loosely defined law that people will obey only sometimes, depending on the guidance. That would not be an ideal arrangement.

Rob Marris: Surely it is up to a business to decide whether such use is significant. If it is, class 1 national insurance contributions would have to be paid. If it is not, it is a benefit in kind, on which tax is paid by the employee, not the employer.

David Gauke: The employer, when providing such a facility to their employees, will be expected to provide some advice. As the hon. Gentleman says, national insurance contributions would have to be paid, and the employer would need to take a view on that point. A degree of monitoring would be required.
	My fourth point relates to one that the hon. Member for Wolverhampton, South-West (Rob Marris) made with characteristic candour: the lack of consultation surrounding this proposal, which was rushed out without regard for the need to examine the various arguments. The Paymaster General says that there is concern about possible abuse, but why do we not look at this proposal closely and carefully? We have heard about how other countries deal with this issue—how one can have an HCI scheme without its being abused. My hon. Friend the Member for Rayleigh and others referred to what I call the "Minnie the Moocher" argument: if the Paymaster General had looked at the scheme in Sweden, it would have given everything that she was needing. That did not happen, which was a great pity.

Dawn Primarolo: Is the hon. Gentleman aware that the Swedish scheme has been recommended for abolition, and for exactly the same reasons as we have abolished the HCI here?

David Gauke: My understanding is that that scheme is in place. Indeed, we heard earlier that the Danish scheme was abolished and then brought back, because it was missed.
	We have to ask why the HCI is being abolished. I suspect that the Treasury was looking to save a few hundred million pounds, and that the HCI caught the eye of someone there. That is a great pity, but perhaps there is also another reason. The Chancellor has been associated with various polices, such as the individual learning account. He was criticised for being very slow in identifying fraud and misuse of the ILA, and he resisted getting rid of it. I wonder whether the question of not allowing the HCI to continue was a sensitive issue for the Treasury. None the less, the Government's scrapping of that scheme was a panicky overreaction. There should have been consultation and we should have addressed the real concerns, but that has not happened.

Philip Dunne: I am grateful to you, Mr. O'Hara, for allowing me to contribute to this debate. This is a novel experience for me on two counts. This is the first time since joining this House that I have attended a debate in which the Government are insisting on scrapping a successful measure; in my experience, they usually seek to abandon failed initiatives that they have introduced during their tenure. To witness them abandoning a successful one is surprising, to say the least.
	I am pleased that the Paymaster General has an opportunity today to defuse criticism of this penny-pinching, revenue-retaining measure by making a positive announcement on digital inclusion. In my experience, the Paymaster General is usually asked to defend the indefensible on the Chancellor's behalf, but today she is able to announce some good news. However, it is a classic new Labour move: on the one hand, we are debating a measure, the withdrawal of which will save the Treasury £300 million over three years; on the other, Labour is sweetening the pill with a £50 million new initiative, but it is merely a sleight of hand to try and distract attention from the bigger issue.
	Having said that, I welcome the digital inclusion initiative and I should like to comment briefly on it, given that the Paymaster General introduced it into this debate. I hope that the new cross-departmental unit will address the severe shortcomings of the digital TV footprint. It is claimed that digital TV will reach 98.5 per cent. of the population. Given that the Paymaster General has taken an interest in this subject, I will send to her and to whoever is responsible for running the new unit a map that the Shropshire Star helpfully provided. It shows the area along the Welsh marches that would be excluded from digital TV coverage. That area includes most of the western half of my constituency and all the area classified as an area of outstanding natural beauty, which amounts to about 80 per cent. of south Shropshire district. I look forward to hearing about the measures that this magnificent new unit will implement to provide coverage for my constituents.
	I want to speak to amendment No. 2 to clause 61. The home computing initiative has encouraged home-working, and before I illustrate this issue with some comments about my constituents, I want briefly to highlight some of the non-financial benefits that derive from home working of which the Paymaster General may not be aware. BT, one of the largest employers in the country, has undertaken research among its work force. It states:
	"People working from home are 7 per cent. happier than their office-based colleagues".
	So there is a happiness quotient to this issue. The research also noted that there is
	"20 per cent. less absenteeism than the national average"
	among such people, on account of BT's home-working policy. These non-financial but none the less important factors are being put at risk by this penny-pinching Government measure. There are 8 million people working from home, who—

Dawn Primarolo: People working from home are not affected by this measure. The hon. Gentleman is speaking to an amendment that has not been selected and about a subject that we are not debating.

Philip Dunne: As I said earlier, I am supporting my Front-Bench colleagues' amendment to clause 61, which we are debating and which is about home computing.

Edward O'Hara: Order. I must rule from the Chair that the Paymaster General is correct: amendment No. 2 has not been selected.

Philip Dunne: I stand corrected, Mr. O'Hara, and I am grateful for that clarification.
	On the general subject of home computing and the amendments that have been selected, I want to draw to the attention—

Edward O'Hara: Order. According to my information, no amendments to clause 61 have been selected.

Philip Dunne: I am grateful again, Mr. O'Hara, for making that clear. I shall therefore explain very briefly why the Government's proposals are so important to me and my constituents.
	Shropshire was the home of the first industrial revolution, and it is also the home of the current home working revolution. I represent the southern part of the county and am delighted to say that it is second only to the Isles of Scilly—and the House will not be surprised that there is significant amount of home working there—in terms of the number of home workers per head of the population. In my area, 15 per cent. of self-employed people now work from home.

Dawn Primarolo: What is the relevance of those figures?

Philip Dunne: The Minister is questioning the relevance of those figures—

Ivan Lewis: What is the relevance of the whole speech?

Philip Dunne: The relevance is that home working is put at risk by the Government's proposal to scrap the home computing initiative, which has meant that people, especially in rural areas, now have improved access to broadband, for example. It has also improved access to work for those people in deprived rural areas who lack public transport and job opportunities. Even people with their own transport have to travel a long way to work in such areas.

Rob Marris: At the risk of detaining the House, will the hon. Gentleman say more about his statistics? Labour Members usually understand the term "home working" to mean the gross exploitation of labour, such as paying people piece rates to pack Christmas crackers at home. It is not taken to mean the wonderful world of telecommuting by computer.

Philip Dunne: I shall give the House a specific example of the sort of effective and high-tech home working that goes on in my constituency and across the country. A company called Premier Medical processes insurance policy claims, and about half of its staff work from home. The hon. Gentleman is a neighbour of mine and, if he is interested, I should be delighted to take him to meet the magnificent managers who have relocated the business to my area from the south-east.
	I hope that the Paymaster General will explain why the Government want to scrap an initiative that is working so well.

Mark Francois: It falls to me sum up this interesting and sometimes vigorous debate on the future of the home computing initiative and clause 61. A number of contributions were made and I am sorry that time constraints mean that I cannot refer to all of them individually, but I shall attempt at least to genuflect to some where I can.
	I welcome the Paymaster General's commitment that HMRC, in consultation with industry, will issue guidelines to define what constitutes a "not significant" use of a computer. We have pressed the Government on that quite hard over the past week. We tabled amendments on the subject, and I am pleased that the Government have listened to us and agreed to produce a definition. I hope that it will remove doubt, but I repeat that it would be better to delete clause 61 from the Bill, so that the problem would not arise in the first place.
	First, in her opening speech the Paymaster General did not provide a convincing rationale for abolishing the scheme. She talked vaguely about a few websites that provide examples of inappropriate equipment, but was unable to quantify that or to put clear figures on the extent of the abuse. If the Government's argument is based on the claim that abuse has been widespread, I should have expected the right hon. Lady to have been able to give firmer examples.
	Secondly, we have argued that the scheme could be saved by being more tightly defined. The abuse that the Government claim is going on could be prevented if they were to produce an inclusive list of the products that would continue to qualify, and an exclusive list of those that would not. We have referred to the other countries that have done exactly that, and I point out to the Paymaster General that although a debate is taking place in Sweden about whether the scheme there should continue, it is still in force and is likely to remain so. It is incorrect to say that the Swedes have decided to scrap it: they are debating what to do.

Peter Luff: My understanding is exactly the same as my hon. Friend's. I left the Chamber to check what was happening in Sweden, and was told by a person in that country that the scheme is not going to be scrapped. If the Paymaster General has contradictory information, she should share it with the House.

Mark Francois: I agree with my hon. Friend, the Chairman of the Trade and Industry Committee. We have used Sweden as a specific and empirical example of how guidelines could be produced to allow the scheme to survive, were the Government so minded. The problem is not one of definition; it is that the Government wants the money.
	Thirdly, the Treasury's own regulatory impact assessment confirms that a more tightly defined scheme could be continued at a reduced cost to the taxpayer. Option 2 of the Treasury's RIA is entitled "Refocus the Exemptions"—exactly what we have argued. The Treasury estimates that a refocused scheme would cost £190 million a year to 2010–11, compared with the £370 million a year that the scheme would cost were it to continue unaltered. I refer the Paymaster General to the table printed below paragraph 76 of the RIA.
	It is therefore possible to refocus the scheme, keep it alive and save all its benefits—and save money for the taxpayer in the process. That has to be a win-win proposition and the House would be wise to adopt it. Arguments in the scheme's defence have been made by the CBI and the TUC, other Government Departments such as the DTI, employers that have implemented it at the Government's behest, companies that were set up to support it and the people who are benefiting. However, given the attitude exhibited by the Paymaster General and the other Labour Members who have contributed to the debate, I fear that the Government have closed their ears and minds to them all. To put it bluntly, they are minded to take the money instead.
	This is a poor decision. It will be detrimental to our long-term competitiveness in the 21st century, not least in respect of countries such as China and India. Moreover, as my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) noted, the next time that the Government launch a scheme to promote information technology and look to business and the unions to support it, who on earth will believe them? Effectively, they are canning this scheme after only two years of operation. How will major multinationals looking to invest in IT projects and facilities in this country view that?
	We all know what has happened—a decision was taken just before the Budget to take the money. Under pressure, the Government have been desperately scrabbling around for a way to justify that decision. This evening, they have suddenly come up with the digital inclusion team as a fig leaf that they hope will do just that. The Government's proposal marks a sorry decision, so I genuinely make one last plea to the Committee, including the Labour Members who have expressed reservations about the measure: join us in the Lobby and save the home computing initiative from that awful, mistaken proposal. I move that clause 61 be deleted from the Bill—

Edward O'Hara: Order. The Chairman puts motions at the appropriate time.

Dawn Primarolo: The hon. Member for Rayleigh (Mr. Francois) made a nice try, Mr. O'Hara, but he was not fast enough.
	I think that it would help the Committee if we reflected on the introduction of the regime, its performance and the current position, to clear up some of the misunderstandings.
	I assure the hon. Member for Ludlow (Mr. Dunne) that no amendments have been selected. If he looks at the annunciator screen, he will see that it says, "Clause 61 stand part". There has been no attempt to amend the clause, which would be almost impossible due to the definitional problems. Furthermore, the clause has nothing to do with home working, so I shall park all those points.
	At the time of the 1999 Budget, my right hon. Friend the Chancellor said:
	"We hope this new measure will encourage business to loan computers to their employees and that it will be as successful as a similar scheme developed in Sweden . . . There are real benefits to business, employees and the wider community from increasing access to computers."
	The digital strategy launched in April 2004 was assessed by the Prime Minister's strategy unit, with a foreword by the Prime Minister and the Secretary of State for Trade and Industry. The assessment stated:
	"The conclusions in this report will be implemented by government and will play a crucial role in improving the cohesion of our society, the wealth of our economy and the quality of the life of our people."
	The report was reflecting on the fact that the home computing initiative was not sufficiently targeted to help the low paid, the unemployed and the excluded.
	The HCI was underpinned by a tax exemption, which can be found at section 320 of the Income Tax (Earnings and Pensions) Act 2003. It allowed an employer to lend a computer to an employee for private use, tax free. If an agreement between the employer and the employee was in effect a hire purchase agreement, the tax exemption did not apply and any direction issued by the Office of Fair Trading would not cover it. That means that the tax exemption does not apply where the computer equipment has been bought, whether for a mother or otherwise. That is quite clear.
	As Members have pointed out, the HCI was modelled on a Swedish scheme introduced to increase home computer ownership. The evidence from Sweden shows that between 1996 and 2001 home computer penetration rose by 29 per cent. to 56 per cent., a compound annual growth rate of about 14 per cent. However, over the same period, UK household penetration increased from 27 per cent. to 44 per cent., a compound annual growth rate equivalent to 12 per cent. So the UK achieved a comparable rate of growth in home computer take-up when the HCI was barely used, demonstrating that the HCI itself has not had a strong impact. I am not saying that it has not helped, but other issues have been involved, such as competition and liberalisation.
	With regard to other international comparisons, a similar HCI scheme was introduced in the Netherlands but it was scrapped several months ago, citing the same sort of reasons as those in the UK. In Sweden, the Agency for Public Management, which is responsible for efficient public administration and promoting e-government, recommended abolishing the scheme in August 2005, as its positive effects had declined while its costs remained high. The Swedish Finance Minister is considering action at present.

Mark Francois: Where is the evidence?

Dawn Primarolo: I am putting the evidence to the Committee.
	In the Netherlands and in Sweden, whatever the Finance Ministers decide to do, as in the UK, there have been rising costs, poor targets and a lack of impact on the important areas that the Committee has identified.
	The hon. Gentleman asked why the Government did not target misuse of the scheme. That is a bit rich, as the Conservatives did not manage to get any of their amendments selected, for precisely the reason that we constantly give: it is extremely difficult to draft legislation to cover certain types of equipment while excluding others, because the technology is changing.
	The hon. Member for Rayleigh said, "Well let's do it once a year." Once a year, he wants a completely new statement that would be out of date already, excluding equipment that would not otherwise have been included in the system. Opposition Members say that the scheme should be restricted—perhaps to basic rate taxpayers or someone else—while complaining about administrative burdens and the scheme's complexities. So, the Government had to take a decision. If the scheme is poorly targeted and abused and if we cannot target it sensibly, the Government must determine the best way to proceed, and the best way to proceed is the way that the Government have said: through our digital strategy and the announcements that I have made today.
	My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) asked, "Why change overnight?" We had problems in the system, which I will come to, and we could not find a way to squeeze them out of the system, and we needed to ensure that we refocused. I cannot see how that could have been done in any other way. When the scheme was introduced in 1999, it was made clear that it would be kept under review. When the digital strategy came out, it was made clear that that review was ongoing, particularly in respect of targeting. There can be no doubt in any quarter that the Government were considering this, although I accept that some people do not like the outcome.

Peter Luff: Will the right hon. Lady give way?

Dawn Primarolo: No, it has been a very long debate.

Peter Luff: Will the right hon. Lady give way?

Dawn Primarolo: No, I should like to complete—

Peter Luff: Will the right hon. Lady give way?

Dawn Primarolo: No, I do not wish to give way.
	It has now been suggested—I can only suggest that it is wilful misinterpretation of the proposed changes—that the removal of the tax exemption in section 320 of the ITEPA 2003 is somehow undermined where an employer provides computer equipment solely for work purposes and that, where any private use is not significant, no tax charge will arise. That was the case before 1999, and it is the case now. Employers need to work under that system; they have worked under it in the past. The idea that the Opposition have wrung a concession out of the Government is preposterous. All the Government have said is that employers must operate under the same rules as applied in 1999, and that if they require guidance and they want to discuss it we are happy to do so—but the idea that this is something new is just ridiculous.
	The hon. Member for Rayleigh referred to the regulatory impact assessment and says that it analysed the impact of removing the tax exemptions, but he should read a bit further because it then refers to mobile phones and computers. It summarised the evidence of misuse, but it also made it clear that that was only one of the reasons on which the decision was based. There was a lack of focus, poor targeting, rising costs and abuse.
	Let us deal with the abuse. I am sorry that I did not take longer in introducing the clause, by going through the types of things that are now being offered. We have got PCs, which will be
	"a delight for intense gamers and the users of high-performance visual application."
	We have then got option 7—I will not embarrass the taxpayer by saying who is offering such schemes—that says:
	"This is the complete home entertainment package. This is an enhancement."
	Then, having made it clear that this is about what is on loan to employees—this comes to the point about take-up—one of the websites very helpfully asks:
	"What happens at the end of the scheme?"—
	that is, comes to the end of the negotiated settlement—and it says,
	"You may be able to start a new scheme with a more up to date computer."
	So people who have already got a computer will get another one, but the scheme is supposed to be about take-up by the low paid and the excluded.
	The website then says:
	"Can I get more than one computer?"
	That is not the purpose of the scheme, but the website goes further. I really do not know how this will be used: apparently, people can have as part of their package a massage ball. I have not figured out, because I do not have one, exactly how that is plugged into the computer and is part of the HCI—and I do not want to hear any rude comments—but I am sure that the hon. Member for Rayleigh might prefer to take up the mug warmer option in the HCI, or perhaps he would like to go further.

Peter Luff: Will the right hon. Lady give way?

Dawn Primarolo: Not at the moment, because the hon. Gentleman asked me for the evidence and then ridiculed me when I did not provide it. I am going on to give it.
	Perhaps the home cinema package is helping the excluded—or iPods, which are great, but are hardly about ensuring the take-up of information and communications technology initiatives by the socially excluded. I freely admit that I made a mistake in being much too kind to the hon. Gentleman. I referred to websites and said that I would let him have details. I should have said that if he looks at the sites, he will see that about 75 per cent. show signs of offering leisure equipment outside of the intended exemption.
	What have the Government done? My hon. Friends the Members for North Swindon (Mr. Wills), for North Durham (Mr. Jones) and for Wolverhampton, South-West referred to that. We have refocused on the low paid and the unemployed, and on making sure that we truly have a strategy that reaches the parts that are excluded from information technology.
	When removing any tax relief, the Government have not only to consider its popularity, but whether it is still meeting its aims and is not imposing an unfair burden on the taxpayer population as a whole. The tax exemption was a popular scheme and has given many employees access to home computers since 1999, but it does nothing to help those groups who are the most technologically excluded—those on the minimum wage, those not in employment and the elderly. That is what the Government are moving to do and that is why they are removing the HCI exemption. I commend the clause to the House.

Question put, That the clause stand part of the Bill:—
	The Committee divided: Ayes 281, Noes 158.

Question accordingly agreed to.
	Clause 61 ordered to stand part of the Bill.

Clause 26
	 — 
	Abolition of corporation tax starting rate and non-corporate distribution rate

Julia Goldsworthy: I beg to move amendment No. 27, in page 26, line 19 [Vol I], at end insert—
	'( ) At the end of section 8 of ICTA there is inserted—
	"(3A) Notwithstanding the provisions of this section—
	(a) corporation tax shall not be charged on the profits of a company where the profits of the company for any accounting period in question do not exceed a limit of £500;
	(b) where an accounting period is shorter than 12 months that £500 limit shall be reduced in proportion to the reduction in accounting period; and
	(c) where a company has associated companies, that £500 limit shall be reduced in proportion to the number of associates during the accounting period.".'.
	The amendment was tabled because of concerns that many small clubs and societies will once again have to pay corporation tax on very small amounts of income as a result of the abolition of the nil rate corporation tax band, which I broadly support. Such income arises from the negligible amount of interest arising from the associated costs of dealing with tax affairs. As many as 64,000 small clubs or associations could be affected, and the compliance costs for taxpayers and HMRC are unlikely to be outweighed by any tax raised. Even if HMRC does not expend any effort in undertaking to pursue small clubs and societies for tax, the clubs themselves are technically required to provide that information, and the most responsible among them will take on that burden. They may even believe that they need to seek new or differently skilled officers, especially given the substantial coverage of the frequent changes to small business tax in the past six years. The amendment would help to prevent such a burden from being imposed once again on many small societies, and I commend it to the House.

Mark Hoban: I support the amendment, and I should like to match the hon. Member for Falmouth and Camborne (Julia Goldsworthy) in brevity. Professional bodies have raised their concerns about the matter with Revenue and Customs, which has expressed a willingness to tackle it with a concession. However, there is anxiety that that concession may not have the legal standing that it had had prior to the Wilkinson case. The Opposition would therefore welcome confirmation that the concession stands and has legal weight, thus preventing an undue burden falling on small clubs and associations.

John Healey: This has been a useful, well-targeted and focused debate. The amendment is drafted rather widely, but I commend the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for Fareham (Mr. Hoban) on focusing their contributions tightly on concerns about clubs and societies, thus reflecting representations from the Institute for Chartered Accountants. However, there is no need for an amendment to achieve the result desired by the hon. Member for Falmouth and Camborne.
	For many years, the Inland Revenue and, latterly, HMRC have not sought corporation tax returns from clubs and unincorporated associations with very small tax liabilities. That practice was established before the introduction of the starting rate of corporation tax, and it will not be affected by the changes in clause 26. Any club or society that is unclear about its tax position should ask its local HMRC office for advice. Clubs and unincorporated associations with larger profits may wish to consider whether they are eligible for the generous tax reliefs resulting from Government changes to existing schemes for grassroots clubs that are genuinely accessible to all under community and amateur sports clubs provisions.
	The amendment would involve unnecessary costs and complexities, so I hope that the hon. Lady will feel able to withdraw it. The purpose that she mentioned and the hon. Member for Fareham repeated is not being sought. Sensible practices are already in force within HMRC to ensure that the corporation tax regime is applied reasonably in respect of clubs and unincorporated associations. Going further down the path suggested by the amendment, and particularly building it into legislation, would be counter-productive. I hope that the hon. Lady will withdraw the amendment, so that the House can move on to the more substantive questions in the clause stand part debate.

Julia Goldsworthy: I am slightly reassured by the Minister's remarks. It would be preferable for HMRC to deal with the problem through concession and, historically, that would be the most appropriate course. However, that might not be possible formally because of the House of Lords decision in the Wilkinson case of 2005, which cast doubt on the extent of HMRC's discretionary powers not to apply the strict letter of the law in appropriate circumstances.
	Without HMRC being able to put its policy into effect with a public pronouncement about the position of clubs and societies, it will nevertheless have to deal with their inquiries. With its ability to deal with those concessions in doubt, I thought that the best way to bring the matter to the Committee's attention was through my amendment. I shall not seek to divide the Committee on this occasion, but I would ask the Minister to look into ways of ensuring that small societies are not adversely affected by the extra administrative burden that the reintroduction of the zero rate will impose.
	In conclusion, I request that the Government consult urgently the small clubs and societies affected by the amendment and ensure that they are properly informed of their responsibilities. I also request that the Government undertake to tackle the problem of concessions, as exposed by the Wilkinson case. I beg to ask leave to withdraw the amendment.
	Amendment, by leave, withdrawn.
	Question proposed, That the clause stand part of the Bill.

John Healey: Clause 26 essentially introduces schedule 14. Together, the effect is to replace the starting rate of corporation tax and the non-corporate distribution rate with a single small companies rate, which is currently set at 19 per cent.
	There are three important aspects of the background to the provisions, which the Committee may wish to consider in deciding whether the clause should stand part of the Bill. First, there are the reasons why the Government introduced the starting rate of corporation tax. Secondly, we had a wide-ranging debate with business and its representatives about the proper form of taxation for small businesses. Thirdly, responses were made to our announcement last December in the pre-Budget report that, as a result of those discussions, we had decided to remove the non-corporate distribution rate and starting rates of corporation tax.
	The Government have consistently supported business and enterprise. We have provided a tax regime with incentives for individuals to invest not just for their own future, but for the wider prosperity of Britain. We have also provided incentives to encourage business to expand and grow. We introduced the starting rate of corporation tax at 10 per cent. in the year 2000 and then reduced it to 0 per cent. in 2002 in order to provide the means for small companies to reinvest their profits in their business.
	As the Committee knows, we always keep the tax system and its operation under close review. We did so in respect of this particular matter, as we undertook to do when we introduced the measure. We saw that the benefits of incorporation and being able to access the starting rate were being used by some small businesses not as a step to growth, but simply as a vehicle to reduce their tax and national insurance contributions liability, while continuing to trade in exactly the same way as before, drawing profits in the form of dividends and not reinvesting them in the business. We therefore introduced the non-corporate distribution rate in 2004 to ensure that the benefits of the starting rate remained focused on companies that were retaining their profits for growth.
	We said at the time that the problem of tax-motivated incorporation was part of a wider issue and that the NCDR was not the end of the matter, but that we would consider the long-term strategic issues raised by these developments, to ensure that the tax system adequately reflects the realities of today's changing labour market and business environment. In the pre-Budget report in 2004 we published a discussion paper and invited views from, among others, smaller firms and their advisers on these wider issues.
	The responses ranged almost as widely as the organisations. One thing is clear; there is no single fix that will level the field between all small businesses, irrespective of legal form. Although there was no consensus about the specific changes that they wanted, one overriding feature of the responses from all quarters was a strong preference for simplicity over approaches that risked introducing further complexity. Responding directly to the debate and to our own analysis of the situation, we announced in the pre-Budget report in 2005 that we would replace the starting rate and the non-corporate distribution rate with a single small companies rate. That is what clause 26 achieves.
	We wanted to refocus the way that we provide incentives for small firms that invest and grow. We announced that the first year capital allowances for small businesses would be increased for the year beginning April 2006 to 50 per cent., and that the turnover threshold for the VAT annual accounting scheme would be increased to £1.35 million; doubled, in effect. We also announced that we would look to increase the threshold for the VAT cash accounting scheme to a similar threshold, pending state aids clearance from the European Commission. Rather than favouring the incorporated small business, these measures will assist the incorporated as well as the unincorporated small business.
	About 4.2 million businesses are eligible to benefit from the increase in first-year allowances, 1.08 million small businesses are eligible to benefit from the increased threshold of the VAT annual accounting scheme, and about 733,000 businesses are eligible to benefit from the increase in the threshold for the VAT cash accounting scheme, if we can put it in place pending state aids clearance.
	That move in December was welcomed by business. In response to the pre-Budget report, the Federation of Small Businesses commented:
	"The replacement of the zero rate of corporation tax by increased capital allowances for small business was welcome. This will reduce differences in the taxation of small business, depending on how they are organised";
	precisely the aim of the move. Furthermore, there is a clear ongoing desire and commitment on the part of businesses and their representative organisations to continue to work with us on the longer-term future of taxation for small business.
	In the Budget in March we therefore stated that we continue to believe that all individuals and businesses must pay their fair share of national insurance contributions and tax, irrespective of legal form. We also said that we would continue to review the tax and NI systems to ensure that that was the case, and that we would produce proposals for discussion consistent with a set of principles that include simplicity for compliant businesses, support for businesses in their aspirations to grow, and maintaining the attractiveness of the UK as a business location. These are the principles that underpin the provisions in clause 26. I commend the clause and the principles to the House.

Mark Hoban: I am grateful for the opportunity to debate clause 26. The Financial Secretary briefly discussed the history of the measure, and I want to spend a little more time on that, because I think it important to understand why we are where we are. The current situation is not a surprise, because there were indications along the way that it would happen. In the Finance Bill, the Government are taking more than £800 million out of small businesses over the next three years with scant compensation for the additional costs that those businesses must bear at a time when small businesses are facing higher burdens through not only tax but regulation.
	The Chancellor introduced the measure to stimulate business but later restricted it with complex legislation around the non-corporate distribution rate, which added to the complexity of the system. He then announced the measure's abolition, saying that it was a bold move to simplify the system, but he was simplifying his own handiwork and the damage that he had created.
	As the Financial Secretary has said, the corporation tax starting rate was introduced by the Chancellor at 10 per cent. on profits up to £10,000. In his 1999 Budget speech, the Chancellor said:
	"I want to create an even lower rate, which will give new incentives for men and women to start their own businesses and work their way up . . . The legislation will ensure that the beneficiaries are genuinely those who take risks. And 85 per cent. of the firms gaining from the 10p tax rate will have fewer than 10 employees—the very firms that we most want to see grow; the very firms whose growth will create the greatest number of new jobs."—[Official Report, 9 March 1999; Vol. 327, c. 177.]
	The measure was clearly targeted to stimulate business. To reinforce its impact, the Chancellor reduced the starting rate from 10 per cent. to 1 per cent. in his 2002 Budget. Hon. Members may remember that that was also the Budget in which he increased national insurance contributions, so perhaps the reduction was seen as compensation for small businesses for the increase in national insurance.
	When we debated those changes in Committee and on the Floor of the House, hon. Members identified some of the risks. In 2002, we supported the introduction of the zero rate, and we oppose its being scrapped in the Finance Bill. We welcomed the relief that it provided for small businesses and object to the burdens that it places on them today. We want to support our small businesses, not attack them when they feel vulnerable because of increased regulation and red tape.
	I want to highlight three issues: the bias towards incorporation created by the measure; the cost of the zero rate against the money that the measure will save; and the economic benefit accruing from the zero rate. It was clear   in 2002 that there would be an incentive for unincorporated businesses to become limited companies. Indeed, I made that point in Standing Committee in 2002, where I pointed out the concern among unincorporated businesses about the fiscal advantage of incorporation:
	"Many unincorporated businesses feel that the Government are trying to drive them towards incorporation. They do not wish to incur the additional costs of incorporation, but the tax regime is such that they feel almost obliged to do so because if they did not, they would be significantly worse off."—[Official Report, Standing Committee F, 16 May 2002; c. 104.]
	Both the hon. Member for Kingston and Surbiton (Mr. Davey), who served on that Committee and the Institute for Fiscal Studies have commented on that matter.
	In Committee, the Paymaster General chose to dismiss the views of not only a new Back Bencher but the Institute for Fiscal Studies. She highlighted incentives for unincorporated businesses and attempted to explain why they should not automatically seek to take up incorporation:
	"It is not a question of the Government making companies choose between incorporation or unincorporation . . . but of demonstrating clearly the steps to help businesses".—[Official Report, 30 April 2002; Vol. 404, c. 912.]
	Given the strength of those incentives, it is remarkable that any business embarked on the route that this year's Red Book described as "tackling tax motivated incorporation", since the attractions, according to the Paymaster General, of the other support for business were such that they should not feel the need to be incorporated. The Government highlighted the cost of the zero rate of corporation tax. That was the subject of the report that the IFS produced during the consideration of the Finance Bill 2002. The hon. Member for Kingston and Surbiton said of that report:
	"Through its analysis of the survey on personal incomes 1998–9, it says that 1.2 million self-employed people each stand to gain in excess of £500."
	He said that the IFS calculated that
	"the cost would be £1.2 billion, compared with the highest possible figure from the Government so far of £450 million."—[Official Report, Standing Committee F, 16 May 2002; c. 108.]
	Typically, the Paymaster General was trenchant in her remarks, batting away the IFS, saying:
	"Sometimes its figures are nearly right and sometimes they are spectacularly wrong."
	She went on:
	"The Government stand by their estimates in the Red Book of costs rising to £450 million."—[Official Report, Standing Committee F, 16 May 2002; c. 114–115.]
	On that occasion, the Paymaster General was right, as it was spectacularly wrong. The Red Book shows that the saving to Government in 2008–09 through scrapping the zero rate of corporation tax—£530 million—is not that dissimilar from the highest cost that she predicted in those debates back in 2002.
	The other issue that we debated then concerned the economic benefits and what would happen as a consequence of the zero rate being introduced. Again, the Paymaster General mounted a robust defence:
	"We believe that cutting corporation tax is an effective way of targeting support at small and growing businesses. It also encourages would-be entrepreneurs to set up new companies."
	She heralded the measure as
	"a targeted reduction in tax to help small and new companies thrive and grow."—[Official Report, Standing Committee F, 16 May 2002; c. 114.]
	It is rather difficult, four years later, to see why the Paymaster General and the Treasury have deviated from their robust line of defence of the zero rate of corporation tax. The measure went through after detailed and robust scrutiny on both sides of the House. The then Member for Arundel and South Downs tried to make amendments to extend some of the benefits for incorporated companies to unincorporated companies, but the Paymaster General's remarks show that she vigorously defended of the attractiveness of remaining an unincorporated business.
	The Treasury then started to get cold feet. Having looked again, it introduced the non-corporate distribution rate. By the time of the 2003 pre-Budget report, it was clear that many businesses had incorporated, which was described as "avoidance" by the Revenue. In the PBR speech, the Chancellor talked about the need to ensure that small companies paid the right amount of tax. Following those remarks, in the Finance Bill 2004, we saw the introduction of the non-corporate distribution rate, which was to ensure that where dividends were paid to shareholders, they were taxed at 19 per cent. rather than 0 per cent. But the mechanics of the NCDR impose differential rates of corporation tax between distributed and non-distributed profits. That is complicated to manage and added to the complexity of the tax system.
	Despite all that, the Government threatened further complexity to try to tighten the system. It is no surprise that most respondents to the PBR consultation said that they favoured simplification over options that risked additional complexity. But who created the additional complexity? It was the Chancellor, who is trying to unpick the problems that he himself has created.
	The tax relief granted to stimulate enterprise was restricted by increasing the complexity of the tax code, and then scrapped to reduce the complexity of the tax system, with little by way of compensation to stimulate small businesses. It is therefore not surprising that many business groups have been hostile to the change. The Financial Secretary prayed in aid the Federation of Small Businesses. At the time of the pre-Budget report, the Confederation of British Industry stated:
	"While the CBI support simplification of the corporation tax structure, this measure will mean that companies with profits of less than £50,000 per year could face a tax increase".
	Bill Midgley, president of the British Chambers of Commerce, commented that
	"we have concerns that the removal of the 0 per cent. starting rate of corporation tax will harm the growth of some of the smallest firms."
	Let us remember what the Paymaster General said in 2002:
	"The measure is a targeted reduction in tax to help small and new companies thrive and grow."—[Official Report, Standing Committee F, 16 May 2002; c. 114.]
	Four years later, the Government are introducing measures that the president of the British Chambers of Commerce believed would harm the growth of some of the smallest firms.
	After the Budget, Nick Goulding, chief executive of the Forum of Private Business, commented:
	"Small businesses operating on tight profit margins will have found this tax break extremely useful. Business that incorporated to take advantage of this tax break now find they have all the bureaucracy and costs of incorporation and no financial advantage. How can businesses plan effectively when the Chancellor keeps changing his mind?"
	Why did the Chancellor start to unpick that valuable tax relief, on which small businesses relied? The Red Book tells the whole story. The measure is planned to raise £870 million for the Exchequer in only three years. The small businesses that depend on such tax breaks are confronted with an increasing burden of regulation and will stump up an extra £870 million for the Treasury.
	It is worth remembering, in the context of the measures announced in either the 2005 pre-Budget report or this year's Budget that, in the first full year in which the provision takes effect, in 2008–09, the tax increase is the second highest in raking in revenue for the Treasury. It is second only to the huge hike in tax revenues from the oil industry. So much for the rhetoric of helping small businesses. They are bailing out the Government and trying to plug the Government's black hole.
	Small companies will end up paying an extra £1,900 tax, discouraging them from further growth and from expanding. In 1999, the Chancellor said:
	"I want to do more. I want to create an even lower rate, which will give incentives for men and women to start their own businesses and work their way up."—[Official Report, 9 March 1999; Vol. 327, c. 177.]
	In 2002, the Paymaster General said:
	"We believe that cutting corporation tax is an effective way of targeting support at small and growing businesses. It also encourages would-be entrepreneurs to set up new companies."—[Official Report, Standing Committee F, 16 May 2002; c. 114.]
	The decision to scrap that lower rate, which was designed to promote enterprise and small business, tells the business community everything that it needs to know about the Chancellor. When the chips are down, he raises taxes from them. They are no more immune from the Chancellor's grab to increase tax revenues than any other sector of the economy.

Colin Breed: I agree with most of what the hon. Member for Fareham (Mr. Hoban) said. We all agree that small businesses are our genuine potential for the future. The Government and perhaps previous Governments have gone wrong in not genuinely enabling small businesses to grow in the way we all want them to. Plenty of new businesses have started up but plenty have regrettably failed relatively early. Tax plays a significant part in that.
	Governments in recent times have attempted to change tax rates and the way in which they support small business. We have all largely tried to support the Government's intentions. However, although we are creating small businesses, we do not sustain them for a reasonable period so that they can grow into medium-sized businesses. Far too many fail and far too many are swallowed up by larger competitors. The nurture and support that small business needs to provide the strong economy that we want has not happened. Perhaps it is indicative that tax regimes have changed and we have not got the stability for people to plan properly. Anyone who has started a small business will recognise that the first three to five years are the toughest time. The stability of the taxes that they have to pay is extremely important if they are to plan for the growth that they need. While we applaud the simplicity, we must implore the Treasury to provide stability as well.

Edward Balls: The hon. Gentleman makes a good point about the importance of stability supporting the growth of small businesses. Does he agree that the instability in the macro-economy, the rise in interest rates and the recession of the late 1980s did far more to damage small businesses than any changes in taxation that have taken place in the past 10 or 20 years?

Colin Breed: The hon. Gentleman is absolutely correct. I was engaged in banking at that time, and it was one of the most difficult periods for any bank to support small businesses—let alone large ones—because of the huge effect of high interest rates. This was not only because of the amount of interest that the businesses were paying to the banks, but because of the effect that that had on underlying security. We therefore had the double whammy of a decrease in security and an increase in borrowing. That was the main contributor to the way in which the economy died. I agree that stability in the economy and stability in the ability to plan are essential.
	Whatever we now have in this regime, the loss of the zero rate will certainly increase the tax bill of many small businesses. If that is countered by the increase in the first year's capital allowances, that will make a difference to the growth of those businesses, but they need to be able to rely on that. When they make an investment in plant, machinery or business premises, they need to be able to guarantee that the tax regime will be stable and predictable for the next three to five years. While the Government's motives were correct, the way in which they implemented the measures have perhaps been found not to be. The change in the VAT regime will also be helpful to many small businesses. Increasing the threshold will help their cash flows.
	If we really want small businesses to be the engine room of the economy, we must provide a stable tax regime and appropriate planning, as well as more clarification on research and development grants. We must also ensure that not so many businesses fail. Banks play an important part in helping businesses to get over the inevitable difficulties that they face. I regret that far too many banks do not provide adequate support over the longer term, and we see far too many businesses failing. We want to see businesses being set up, and continuing. That requires support and planning not only from the Government but from other bodies.
	I want to consider the use of the term "fair and appropriate". I do not know what a fair and appropriate contribution to tax is for a business, but it will certainly change over a business's lifetime. Many businesses will find it easier to sustain a fair and appropriate contribution once they have strength and stability. If we try to tax them too early in their lives or submit them to too high a burden of regulation, they will fail and we will get no revenue from them. We need an appropriate tax regime that recognises the difficulties faced by a small business at different stages of its cycle. That would be fair and appropriate, but I am not certain that this particular small business tax regime will achieve it. However, that is what we must aim for, otherwise we will not get a fair and appropriate tax contribution from businesses. There would be far too many businesses starting and failing.

Stewart Hosie: I considered this matter at the time of the Bill's Second Reading, and spoke to representatives of the Federation of Small Businesses about it. They advised me that, when the zero per cent. rate was introduced, the number of FSB members that incorporated moved from 27 to 37 per cent., and that it has stayed broadly constant at 38 per cent. since then. Yet in the Red Book, and throughout these debates, this measure has been described as one that tackles tax-motivated incorporation. However, there does not appear to have been a significant shift in the number of FSB members that have incorporated in the past few years.
	I also note that, in 2007–08 and 2008–09, that will bring the Government a yield of some £920 million—£530 million in 2008–09 alone. Can the Treasury team tell the House how many businesses making a profit of less than £10,000 will be affected and start paying tax at 19 per cent., and how many larger ones will do so? As the provisions are described as tackling tax-motivated incorporation, how many of those businesses, which will now pay but did not do so previously, does the Treasury believe incorporated in the first place to avoid paying tax?

Brooks Newmark: Saying that the Chancellor has executed a U-turn on the nil rate band of corporation tax is not entirely accurate; it is more like a three-point turn. I am heartened that the Chief Secretary has had a damascene conversion and has come to believe in the value of simplicity, but that progress is bought at a price.
	Despite being told at every stage that the nil rate band was open to exploitation, the Government pressed ahead with it in 2002. In 2004, there was wide recognition that the fear of exploitation had been realised. The Government had the opportunity at that point to choose the path of simplicity or the path of greater complexity. There are no prizes for guessing which choice prevailed. However, with the choice having been made to introduce the non-corporate distribution rate, small businesses should not be subjected to yet another change in the corporation tax rules. Stability and predictability sit alongside simplicity as the cardinal virtues of the tax code.
	Our suggested amendment had a very modest objective—to guarantee that the interests of those businesses that were lured into incorporation in 2002 were not further prejudiced by yet another change in the rules. It would have prevented the "gift horse" of 2002 from being remembered instead as the Trojan horse of 2002. In 2002, the then shadow Chief Secretary said:
	"I cannot believe that the Government want every small, sole trader business to incorporate itself. If nothing else, there would be the potential loss of revenue"
	That sensible warning provoked a little reflection before the Paymaster General concluded:
	"I hope that I am right."—[Official Report, Standing Committee F, 16 May 2002; c. 102,116.]

Edward Balls: If we took the hon. Gentleman's advice and did not make the Government's proposed change, and instead stuck with the status quo, would that mean that the tax system was more or less complex?

Ivan Lewis: What does it say there?

Brooks Newmark: It says nothing here, actually. [Laughter.] What individual businesses, particularly small businesses, want is consistency and simplicity. Your question relates to the complexity of the tax code, and no doubt your proposed system would be more complex—

Alan Haselhurst: Order. I am proposing nothing.

Brooks Newmark: You are absolutely correct, Sir Alan. It is the hon. Member for Normanton (Ed Balls) who has an idiotic proposal.
	In 2004, the Paymaster General was a little more certain when she said:
	"The deliberate and cumulative aim is to underpin all the measures that the Government have taken to encourage businesses to grow and to be more enterprising and productive in the medium and long term and not to operate year by year by playing around with the tax system."—[Official Report, 27 April 2004; Vol. 420, c. 846.]
	What is deliberate and cumulative about clause 26? The Paymaster General had an opportunity in 2004 to admit that the zero rate of corporation tax was not viable. Instead, the regulatory impact assessment to which she put her name insisted that the abolition of the nil rate band
	"would be the most straightforward option. However, it would run counter to the Government's aim of maintaining low rates of corporation tax to encourage growth and enterprise."
	On Report, she reiterated that sentiment for those few Members of the House who neglect to read regulatory impact assessments by affirming:
	"I fail to understand how removing the zero rate, yet keeping the 19 per cent. rate, would assist such small companies."—[Official Report, 7 July 2004; Vol. 423, c. 863.]
	I hope that that answers the hon. Gentleman's question.
	It seems that enlightenment is contagious among Treasury Ministers this year, as the Paymaster General now seems to have reached a better understanding of how the removal of the nil-rate band will help small businesses after all. That is what this proposal is about—helping small businesses, not hindering them.
	In his submission to the Treasury Committee in December, Mr. John Whiting, a partner at PricewaterhouseCoopers, said of the current proposals
	"Now we are to go back to the beginning with small business probably feeling they would rather have been left alone from the start."
	In other words, small businesses like needless interference from Government even less—again, I hope that this answers the hon. Gentleman's question—than they like corporation tax.
	Once again, the Government's unhealthy fascination with anti-avoidance legislation precluded sensible consultation. Once again, papering over the cracks has not kept the water out. Once again, the lofty intention of aiding small businesses has ended in a farce. The guiding principle should now be to let well enough alone. If the non-corporate distribution rate was an appropriate solution to a self-inflicted problem in 2004, what has changed since then to justify its removal? I hope that the Minister will answer that question.

John Healey: We introduced the starting rate of corporation tax at 10 per cent. in 2000 to provide the means for small companies to reinvest their profits in their businesses. The hon. Member for Fareham (Mr. Hoban) quoted my right hon. Friend the Paymaster General at length. I remind him that she said at the time of the introduction of the zero rate that we considered that we had the balance between the incentives to incorporate and the incentives to remain unincorporated correct, but she made clear in the Standing Committee that the Government did not have a closed mind.
	It became plain that the starting rate enabled business to escape tax by retaining profits, but did not reward reinvestment specifically. As we have seen, it left the way open for some to incorporate just to reduce their tax and national insurance contributions burden, and not to take a step towards the growth that we wanted to encourage. In those circumstances, business urged simplicity on us and specialists urged us to deal with the starting rate and with the non-corporate distribution rate. The Institute of Chartered Accountants in England and Wales said in its response to our discussion paper in 2005
	"The easiest solution in this case would be to remove the nil rate starting band for corporation tax and repeal the 19 per cent. charge . . .
	We would argue that the cost of abolition of the nil rate band to small companies outweighs the added compliance burden of the new legislation."
	I am glad that the hon. Member for Fareham acknowledged that clause 26 would indeed increase simplicity for small firms.
	The hon. Member for Dundee, East (Stewart Hosie) asked a couple of questions. He asked how many businesses with profits of less than £10,000 a year would be affected by the changes. I can tell him that about 370,000 companies with profits of less than £10,000 will be affected by the clause. The median tax increase for all companies affected will be £475 a year.
	The hon. Gentleman obviously has not looked at the regulatory impact assessment that we published alongside the pre-Budget announcement in December, but if he looks at that and the update that we provided at the time of the Budget in March, he will find not only an answer to his question about how many companies would be affected, but a published breakdown of the number of companies, sector by sector.

Edward Balls: Does my hon. Friend agree that in making tax policy, one is always balancing tackling avoidance with providing the right incentives? It would be simpler if we abolished the 20p rate for small companies and had instead just one rate for all businesses, but that would be bad for small companies, just as it would be wrong to abolish the 10p starting rate for capital gains tax and to go back to the single 40p rate that applied in 1997. In the end, it is about striking a balance between avoidance and providing the right incentives.

John Healey: My hon. Friend cuts to the very heart of the policy challenges that any Government face, and which we have been trying to tackle since we took office in 1997. As he said, it is a question of getting the right balance between creating incentives for small businesses to start up and grow, and preventing the abuse and avoidance that we tend to see promoted and taken advantage of. In dealing with the situation that we faced, we had to decide whether to box around with further legislation—and thereby prevent—the marketed schemes and practices that we wanted to discourage, or whether to take instead the step   urged on us by businesses, their representative organisations and tax specialist organisations: to create a simpler regime. Clause 26 does that by getting rid of the non-corporate distribution rate and the starting rate.
	The hon. Member for Fareham described the clause as simply a tax-raising measure, but it is about fairness, not raising taxes. I refer him to the pre-Budget report, in which we announced the measure.

Brooks Newmark: Will the Financial Secretary give way?

John Healey: I will gladly give way when I have finished making this point. We said in the pre-Budget report:
	"Alongside the revenue raised by this measure, projected receipts have been further reduced as a result of an increase in the number of those incorporating simply to reduce their tax and national insurance liability."

Brooks Newmark: In addressing the important issue of fairness, I would like the Financial Secretary to deal with the point made by the Paymaster General on 7 July 2004. She said:
	"I fail to understand how removing the zero rate, yet keeping the 19 per cent. rate, would assist such small companies."—[Official Report, 7 July 2004; Vol. 423, c. 863.]
	What is fair about that?

John Healey: The unfairness at the heart of the system and the challenge that we face is that many companies are incorporating simply to reduce their tax liability, not because their business demands suggest that that is the proper legal form for them. Companies that do not incorporate are clearly tax-disadvantaged, compared with their competitors.
	I want to pursue the fairness point because it is important and at the heart of our argument. The hon. Member for South-East Cornwall (Mr. Breed) made some key broad points about the importance of small firms in a modern economy, and of Governments being able to implement measures to support their start-up and growth. He said that he was not sure what a fair tax system is. We should remember that as things stand—clause 26 is designed to change this—a self-employed person with profits of £20,000 a year pays some £1,800 more in tax and national insurance than they would pay if they were a company paying corporation tax and taking profits as dividends. That cannot be right, which is why we will continue to keep this issue under review, and why we have taken steps through clause 26.
	As I said, these provisions were announced in the pre-Budget report, and clause 26 implements them. They will encourage reinvestment by increasing first-year capital allowances to 50 per cent. for the year starting this April. Some 4.2 million small businesses—not just those that are incorporated—are eligible to benefit from this increase in first-year capital allowances.

Mark Hoban: Does the Financial Secretary accept that the Red Book puts the cost of the measure, and therefore the benefit to all business, at £60 million? However, the fact that it is a one-off measure prevents small businesses from planning for a stable future and making long-term investment decisions.

John Healey: As I have tried to explain, the purpose of clause 26 is to refocus the support that we give to small firms on measures likely to increase their incentives to invest, to reinvest profits, and to grow.
	Clause 26 will also help by introducing the simpler accounting system for all small businesses that we promised in the pre-Budget report. It will double the annual threshold for the VAT annual accounting scheme so that 1.08 million firms will become eligible. If we are successful in getting the state aids clearance that we require for the cash accounting scheme, the 733,000 small companies currently eligible to benefit under that scheme will rise to 790,000.

Helen Goodman: It may help the Committee if my hon. Friend the Financial Secretary were to put this matter in a wider context. In my constituency of Bishop Auckland the number of new small businesses is at an all-time high. To what extent does he feel that these measures are the cause of such a high rate of small business creation, and is the pattern repeated across the country?

John Healey: I am grateful for that question, but a range of factors make up the business and economic environment that allows small firms to start up and prosper. My hon. Friend mentions the number of new firms in her constituency of Bishop Auckland, but there are now 570,000 more businesses in the British economy than there were in 1997. The business start-up rate is faster than for many years, and that is based on our stable and steadily growing economy, but the operation of the tax system can aid or hinder the formation and growth of small firms. The provisions of clause 26 will introduce a simpler corporation tax structure, and in a modest way will assist the process. All firms will benefit, including those in Bishop Auckland.
	Of course, we can do more to support business, and my hon. Friend the Member for Bishop Auckland (Helen Goodman) is one of those who constantly urges the Government to do so. In the Budget 2006, we have made clear our desire to join business and its representative organisations in looking at doing more. I look forward to the continuing discussions in that regard.
	The measures in clause 26 were welcomed by business representatives as a constructive way forward. I urge the Committee to support its standing part of the Bill.

Question put, That the clause stand part of the Bill:—
	The Committee divided: Ayes 304, Noes 137.

Question accordingly agreed to.
	Clause 26 ordered to stand part of the Bill.
	To report progress and ask leave to sit again.— [Mr. Watts.]
	Committee report progress; to sit again tomorrow.

ADJOURNMENT (WHITSUN)

Motion made, and Question put forthwith, pursuant to Standing Order No. 25 (Periodic adjournments),
	That this House, at its rising on Thursday 25th May 2006, do adjourn till Monday 5th June 2006.—[Mr. Watts.]
	Question agreed to.

MODERNISATION OF THE HOUSE OF COMMONS

Ordered,
	That Mr David Heath and Andrew Stunell be discharged from the Committee on the Modernisation of the House of Commons and that Mr Paul Burstow and Mr Adrian Sanders be added.—[Mr. Watts.]

COMMITTEES

Mr. Deputy Speaker: With the leave of the House, I shall put together motions 5 and 6.
	Ordered,

Regulatory Reform

That Bob Russell be discharged from the Regulatory Reform Committee and Lorely Burt be added.

Procedure

That Annette Brooke be discharged from the Procedure Committee and John Hemming be added.—[Rosemary McKenna, on behalf of the Committee of Selection.]

PETITION
	 — 
	Road Junction (Humberstone)

Keith Vaz: I wish to present a petition that has been signed by residents of Humberstone in Leicester concerning the layout of the junction of Scraptoft lane and Hungarton boulevard, which is dangerous, according to my constituents. As a result of the current layout, a fatal accident recently occurred.
	The petition states:
	The petitioners therefore request that the House of Commons urge the Government to take action to encourage Leicester City Council to create a protected right-hand turn at the junction, reduce the speed of traffic through the junction, and improve the flow of traffic down Hungarton Boulevard.
	To lie upon the Table.

ENERGY REVIEW (HUMAN RIGHTS)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Watts.]

Vera Baird: As the gas price spiralled ever upwards last winter and spring, the disadvantages of our future dependence on that fuel became increasingly obvious. They were clear to the ordinary domestic consumer paying a highly inflated bill, obvious to the point of depression in the Government-supported anti-fuel-poverty sector, and painfully transparent to energy-intensive users, such as the petrochemical businesses in my Redcar constituency. Several of the petrochemical firms, which, together, provide a big slice of the north-east's gross domestic product, had to idle plant and limit output in favour of non-UK locations, and, in one case, temporarily close. The huge hike in those energy costs is likely to have longer-term effects, such as the delay, or even abandonment, of industrial investment in the chemical sector, all of which will be made much worse in the absence of speedy action to guard against a recurrence of the price hike next winter.
	The cause of the problem is at least partly the impact of the early liberalisation of the UK energy market ahead of that of the rest of Europe. Additionally, we are moving more quickly than anyone could have predicted from supplying our own energy, which we have done for the past 100 years, first from coal and then from North sea oil and gas, to potentially becoming dependent on Russia, Algeria and the middle east for gas.
	The problem of relying on Russia, which was previously regarded by the west as a reliable energy source, became especially clear to Ukrainians on new year's day when the Russians cut their supplies. However, the ripple effects were felt thousands of miles away. Not only did France lose a third of its gas, but the whole of Europe, which relies on Russia for a quarter of its supply, was forced to realise that there are serious limits to the length of the spoon that can be used when supping with President Putin. Clearly he will readily use his abundance of hydrocarbons for political purposes, in this instance to punish the western-leaning Ukraines for considering joining NATO and the EU and to force them back into Russian hegemony
	Our dependence on Russian gas looks set to grow. Russia has 28 per cent.—the largest share—of the world's natural gas resources. Given that, should we ask what sort of a country is President Putin's Russia? According to Amnesty International, Russia has an abysmal human rights record. According to Freedom House, another human rights non-governmental organisation that assesses countries across a range of rights and issues as free, partly free or not free, Russia has declined from partly free to not free in the past two years. It says that Russians cannot change the Government democratically because the state's far-reaching control of the broadcast media and the growing harassment of Opposition parties make that impossible. There was strong evidence of an undercount in the vote for Opposition parties in the last election that kept them from attaining the 5 per cent. threshold required for parliamentary representation. Corruption is pervasive and libel laws are used to intimidate the independent media. Putin has just taken power to appoint the judges.
	According to the annual human rights report from the US State Department, Parliament in Russia
	"has been virtually stripped of power."
	There is
	"selectivity in the enforcement of the law and . . . there is harassment of some non-government organisations."
	It is a statement of the obvious that the history of Saudi Arabia and the rest of the middle east shows how difficult Governments find it to be other than indulgent to countries that are rich in energy. Middle eastern countries are, of course, significant gas suppliers. Levels of dependency on a country for energy supplies tend to make purchaser Governments significantly less prepared to challenge the supplier Government's democracy and human rights record, even though we and other western European countries assert that these values are key ones to be supported in foreign policy.
	Europe's only really viable alternative source of gas is Algeria, which is fourth in the world as a gas exporter. However, Algeria, too, has serious human rights problems with Freedom house reporting that the right
	"of Algerians to choose their government freely is restricted".
	Although the recent presidential elections were an improvement it is still reported that
	"the president wields minimum leverage with the small group of generals who retain ultimate power."
	Demonstrations are banned in Algiers while in other areas, peaceful demonstrations have been broken up, sometimes violently. The Algerian alternative source of gas does not seem to hold a better promise of contracting with a clear human rights conscience.
	President Putin has recently engaged in a fruitful piece of diplomacy in this direction. He signed a contract for Russia to supply missiles and fighter aircraft to Algeria. Payment for these is so arranged that Russian influence is now woven deeply into the Algerian energy sector. At the same time, President Putin has tightened his monopoly of the gas transit route from the Caspian and central Asian regions, building up, therefore, a double or a triple potential stranglehold on European gas supplies.
	It is noteworthy that it was Russia that was free to supply enriched uranium to Iran to limit concerns about nuclear weapons proliferation in that country. Iran has the second highest natural gas reserves in the world, behind only Russia, and there are emerging concords in the energy sector between these two countries.
	Recently, the Kremlin controlled Gazprom indicated a wish to bid for Centrica, the UK's largest domestic supplier, which sells gas to 40 per cent. of British homes. Success would secure UK demand as well as supply for the Russians, who are not yet big players in the UK. It would be a surprising outcome if, as the UK energy market is liberalised primarily to create competition, it became dominated by a state-owned corporation, and not even a British one.
	Is it any coincidence that as Russian democracy and human rights are forced downwards and Putin simultaneously extends both his own tentacles of energy supply and his influence over other countries with large gas reserves, that the largest investment currently being made in nuclear power is at Olkiluoto in Finland, which as a country famously shares a common border with Russia and whose domination by the Soviets during the cold war gave rise to the description of oppressive hegemony as Finlandisation?
	The fact that we are timid about energy suppliers' human rights obligations should not be a surprise when one considers the temptations. Energy is vital to modern economies, and problems with supply have been the basis of some of the most important events in recent history, including the global recession in the early 1970s after the Organisation of Petroleum Exporting Countries cut supplies and, in the UK, the miners' strike of 1974 that brought down a Tory Government and the strike in the 1980s that did not do so. Ultimately, the 10-year war between Iran and Iraq, and the two more recent wars in Iraq were strongly linked to, if not determined by, reliable energy supplies.
	In addition, energy-rich countries have a great deal of buying power, and can offer lucrative contracts for western know-how effectively to extract resources from the ground or the seabed. Gazprom is keen to secure western technical help further to develop Russian resources. Those countries are often ready to purchase sophisticated arms from the west, which are necessary to shore up their security and protect the status quo. As chair of the all-party group on Burma, I know the power that hydrocarbons can give despotic Governments. European efforts to isolate the despicable Rangoon junta are constantly foiled by the French, whose oil company, Total, is the regime's largest corporate funder. Incidentally, that has led to the unacceptable belief that the Bush White House operates a more effective sanctions programme against Burma than the EU. The Burmese Yadana gas project, in which Total and the junta are partners, earns the regime up to $450 million a year, which it spends on boosting the military suppression of its citizens and which it uses as an aid to laundering drugs money for the purchase of foreign arms.
	Although we do not buy hydrocarbons from Burma, that country's history teaches us another truth. Countries with immense natural resources may have lop-sided economies. A sudden inflow of dollars as prices rise can lead to an appreciation in domestic currencies, making non-energy sectors uncompetitive in the world and removing incentives to develop other industries, thus confirming the domination of oil and gas. The resource is concentrated so that cash passes through few hands and can easily be misdirected. The inherent instability of commodity prices impacts mostly on the poor, who do not have any way of hedging the risk. Such countries rarely have stabilisation policies to set aside surpluses to cushion the blow when prices fall. Indeed, there are few internal pressures in such countries to govern well at all, because those money flows mean that there is little need to raise revenue through taxes, so there is little need to secure the consent or support of their people, who have little leverage to call their rulers to account.
	Oil and gas extraction do not require large teams of highly skilled indigenous workers, so the individuals in charge see little point in investing strongly in education, welfare or health. Indeed, they do not require huge numbers of unskilled workers. Many such countries grow slowly and do badly on the UN's human development index. Countries with strong institutions can benefit from the wealth that great natural resources bring, including Norway, which has about 1 per cent. of world gas reserves, and, historically, Britain. Both countries had a strongly entrenched representative democracy, freedom of speech and association, as well as the rule of law, long before they realised that they had hydrocarbons. None of the countries in the top five for gas reserves is classified by Freedom House as free.
	Clearly, relying on such countries for our gas supplies can bolster unacceptable regimes and ensure that their citizens pay a high human rights and democracy price even as we pay a high financial one. Ultimately, the dangers and instability to the world from human rights abuses mean that the price that everyone pays is extremely high. Happily, that understanding appears to be compatible with the direction of Government policy. The energy review was partly initiated as a result of the UK becoming a net gas importer sooner than expected and the newly appreciated risks of an unreliable supply.
	There are genuine gains to be made from renewable technologies using wind, wave and solar power. Clean-coal technology and carbon sequestration for coal and North sea oil have a future, while efficiency measures to reduce demand for energy are vital too. Campaigners protest that a fully committed Government should push through much stronger action on renewables and energy efficiency, but such measures often involve major changes to people's lifestyles and are hard to deliver. For example, wind farms are widely opposed because of their impact on the local environment. A proposed offshore wind farm in Redcar is deeply unpopular, because it is less than a mile from the shoreline of our main tourist bay. The proposed onshore wind farm at the steelworks is acceptable to everyone, however, because it is part of the industrial landscape. In a similar way many people resist microgeneration windmills on houses, recently exposed as dangerous and difficult. Wave power may have environmental problems, and the technology for carbon sequestration is only in its early stages.
	The technology that should not be overlooked in establishing what is likely to be a mix of energy supply is nuclear power. At present it contributes about 19 per cent. of our electricity needs, but that could fall to 7 per cent. by 2020. Meanwhile, the Government's target for renewables, which many consider to be optimistic, is for an increase in renewable power from 3.4 per cent. to 20 per cent. by the same date, 2020. These figures show how the majority of the effort that we put into reducing CO 2 emissions through renewable energy is in danger of being wasted if old nuclear power stations are not replaced.
	Importantly for human rights concerns, nuclear fuel can be bought in ways that do not endanger human rights in the same way as gas. It mostly comes from Canada and Australia. Clearly, nuclear power has problems, particularly its waste, though a recent draft statement from CoRWM, the Committee on Radioactive Waste Management, envisages a deep underground repository which it describes as safe and
	"a fair burden to pass to future generations".
	Its chair added:
	"We have looked at whether the options on our shortlist could accommodate new-build wastes and concluded that they could".
	Early indications are that the petrochemical industry, as represented by businesses in Redcar, might be willing to support capital investment in nuclear power generation in return for very important stability of supply in the long term.
	We should hope that the energy review can find workable solutions so that we can continue to benefit from a relatively affordable carbon-free energy source and so that, by expanding our gas purchasing from unacceptable Governments, we do not simultaneously make the world a worse place both for climate change and for human rights.

Malcolm Wicks: I thank my hon. and learned Friend the Member for Redcar (Vera Baird) for the opportunity to discuss the important issues of human rights and the current energy review. It seems that only recently she and I were discussing equally important questions about women and pensions.
	The Government take human rights very seriously and I am proud of the work that we undertake. As a  developed country, with a well-established representative democracy, we have a duty to promote good human rights in all interactions that the UK has with other countries.
	Energy policy is a truly international issue, as events every week demonstrate. Even though the UK has a large natural resource in oil and gas reserves in the North sea, imports remain an important element of our energy mix. In the future, our imported energy will come from a wide range of sources—oil from Denmark and Venezuela, and gas from Norway, Qatar and Algeria, for example. Furthermore, some of the world's leading extraction companies, such as BP, BG Group and Shell, are based in the UK. As such, they share the responsibility for protecting human rights wherever they are operating.
	As my hon. and learned Friend made clear, the way in which countries use their energy resource is an important issue for the whole international community. It was for this reason that in 2000 the UK and US Governments established a set of international voluntary principles on security and human rights. These are designed to help companies to meet the requirements of their international operations, while respecting the human rights and fundamental freedoms of those in the host country.
	We have continued to work with British companies to promote and expand the work of the voluntary principles initiative. I am pleased to see that those principles have formed the cornerstone of those companies' approach to security and human rights in the countries in which theyoperate. The initiative is also backed by a number of non-governmental organisations, such as Amnesty International and Human Rights Watch.
	We are also committed to the Organisation for Economic Co-operation and Development guidelines for multinational enterprises. These set out guidelines on responsible business conduct for all companies based in the UK. The guidelines cover areas such as combating bribery, environmental protection and public health and safety. Stable and successful producer countries are crucial for the international community's long-term energy security. The best way to ensure such long-term security is to ensure that the revenues raised from oil are transparently accounted for and used to benefit the people of those countries.
	Through the extractive industries transparency initiative, we are working with Governments in resource-rich countries to improve such governance through the publication and verification of company payments and Government revenues from oil, gas and mining. Some 20 countries—for example, Azerbaijan and Nigeria, which are significant players in the global liquefied natural gas market—have either endorsed or are now actively implementing that initiative, and other countries that are global suppliers of uranium, such as Niger, have also endorsed the initiative. We are encouraging emerging markets—for example, China, India and Brazil—to support the initiative's implementation in resource-rich countries and by their companies, whether state owned or otherwise. Russia could play a leadership role with those economies.
	Our indigenous supplies of energy have declined sooner than expected. We are already a net importer of gas and expect to be a net importer of oil by 2010. There is no doubt that whatever is decided by the energy review, to which my hon. and learned Friend has referred, the UK will be importing significantly more oil and gas in coming years from a range of countries around the world, but heightened concern about global energy issues are affecting perceptions of the security of supply from major exporter countries. Reliance on imports is not per se a threat to security of supplies. Indeed, all other G7 countries, with the single exception of Canada, have been in this position for many years.
	Securing our energy supplies from a diversity of countries by a number of different routes is an important factor in our energy policy. We are not putting our eggs all in one basket, because diversity helps us to maintain reliable supplies and mitigates the risks of any interruptions. Oil and gas come to the UK from a variety of countries, but a significant proportion of our current oil and gas imports come from Norway—for example, 72 per cent. of oil imports and 80 per cent. of gas imports. Countries such as Germany, the Netherlands and Belgium are also suppliers.
	The market for liquefied natural gas, which can be shipped like oil, is expanding significantly. The UK expects to receive the first supplies of LNG from Qatar by the end of 2007. As the LNG market becomes more global, it is possible that the UK will receive shipments from other producers such as Nigeria and Egypt. That diversity will help to continue our strong record for the continued physical supply of gas and electricity to end users. We have had fewer unplanned interruptions to electricity than any European country except the Netherlands. The expansion of renewables, to which we still remain committed, is further adding to our diverse generating mix.
	We have also been working with the energy intensive users group, which includes the Chemical Industries Association, during the past winter. Our efforts have been focused on maximising gas and electricity supplies, encouraging demand-side response and pursuing fair access to markets across Europe. We are also working with Ofgem, national grid and industry over the summer to ensure that we are in the best possible position ahead of next winter. However, we need to ask ourselves whether we are doing enough to manage the risks of this new situation into the future. That is one of the reasons why the Prime Minister asked me to lead a review of UK energy policy.
	We must ensure that the right framework is in place to help the market to deliver our medium and long-term energy policy goals. The review is therefore looking at the overall framework and within that ensuring reduced carbon emissions, attaining reliable energy supplies, examining the role of nuclear and assessing the potential of carbon abatement and low carbon technologies. In addition, the scope for improving energy efficiency is subject to the review, including achieving affordable and adequately heated homes for the most vulnerable.
	There are no foregone conclusions in the review, but there is one thing that I am sure of—there is no single solution and no do-nothing option. We have just finished the formal consultation as part of the review, and the scale of the debate has been impressive. We have received many more than 2,000 responses to our consultation and I have met more than 500 different stakeholders through our extensive programme of seminars, round tables and other activities, from which three key messages have emerged. First, the objectives of the 2003 White Paper are the right ones, and a review for the long term is the right decision. Secondly, there is a need for greater long-term clarity about the direction of UK energy policy. Thirdly, there is a need for action on both energy demand and energy supply.
	Everyone, whether in Government, in industry or as an individual, has an important role to play in taking action to meet our energy policy goals. We are analysing the evidence that we see from the consultation and further considering the policy options that the review might recommend. We must continue to provide a framework in which the UK market can supply UK energy requirements while at the same time, of course, having regard to human rights considerations, including through our support of the voluntary principles.
	I thank my hon. and learned Friend for the opportunity to discuss these important global issues in the House tonight.
	Question put and agreed to.
	Adjourned accordingly at half-past Ten o'clock.